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Chief Executive's Letter 10 Strategic Report The world is changing faster than ever before, Chief shaping the way our customers live their lives. Growth of shopping via digital channels and Executive’s customer expectations of speed and convenience are changing the retail industry. To meet these Letter challenges, we will continue to adapt and evolve our business to meet new shopping habits and provide customers with great products and services at fair prices whenever and wherever they want to shop with us. Strategic Report 11 This has been a pivotal year for Sainsbury’s. A pivotal year The strategy we set out in November Our goal is to make our customers’ lives 2014 was designed to address a changing easier every day by offering great quality £29,112m marketplace and the investments we products and services at fair prices. Food Group sales (inc. VAT) have made in our core Food business is at the heart of what we do and we have differentiated us through our combination completed our programme to improve the of quality, choice and value. We will continue quality of 3,000 food lines that matter most to enhance our food proposition further and to our customers. We are now reviewing 125 to grow our General Merchandise, Clothing food categories, touching around 60 per cent £581m and Financial Services businesses. We of our food range, to further develop our food welcomed 30,000 colleagues to our business quality and value. Underlying profit before tax in September when we acquired Home Retail Group plc – owner of Argos and Habitat. When we acquired Argos and Habitat in The acquisition will accelerate our strategy September, we became one of the UK’s and gives us a strong platform to deliver leading food, general merchandise, clothing synergies and future growth. and financial services retailers – a multi- product, multi-channel business that offers The retail market remains very competitive. our customers more choice and gives us the Underlying profit before tax for the Group capability to serve them with even greater This has been a pivotal year is £581 million, down one per cent, and Group speed and convenience. sales are £29,112 million, up 12.7 per cent on for Sainsbury’s. The strategy last year. These numbers reflect the positive Sainsbury’s Bank is a great asset to the Group we set out in November 2014 contribution made by Argos to the Group. and played a key part in the acquisition Sainsbury’s market share dropped by 23 basis by enabling us to finance the deal in a was designed to address points to 16.3 per cent and, while like-for-like very cost efficient way. Sainsbury’s Bank a changing marketplace sales are down 0.6 per cent, this is an reached a major milestone this year when we and the investments we improvement on last year, demonstrating successfully transferred savings customers the resilience of our Food business in a and our ATM estate on to our newly built, have made in our core competitive market. Profits at Sainsbury’s wholly-owned banking platform. We Food business mean we continue to be impacted by ongoing price continue to make good progress and will investment and cost price pressures. introduce our new loans platform by the end are clearly differentiated of 2017. This gives Sainsbury’s Bank a solid by our combination of Our balance sheet is robust and we are base from which to grow. We also offer an quality, choice and value.” managing costs carefully. We are on track to enhanced range of products and services, achieve our current cost saving target of £500 such as a choice of home and car insurance Mike Coupe Chief Executive Officer, million by 2017/18 and we have committed options with our new panel of insurers J Sainsbury plc to a further three-year cost saving target and our new mortgage proposition which of £500 million from 2018/19. Net debt has launched in April 2017. reduced by £349 million this year. Consistent with our affordable dividend policy, this year’s final dividend is 6.6 pence per share, bringing the full-year dividend to 10.2 pence per share. Our Business Strategy omers better ust tha r c n a ou n yo w n o e n k e e ls e W Great Colleagues products making the and services difference Our values at fair prices make us different There for our customers 12 Strategic Report The new Sainsbury’s Group 2 Grow General Merchandise & We are building a business for now and Clothing and deliver synergies the future. We go forward as a combined Sainsbury’s General Merchandise business Sainsbury’s Group, strengthened by the is well-established and growing. We are The market remains very addition of Argos, Habitat and Sainsbury’s focused on developing complementary, competitive and the impact Bank. We benefit from the trust customers clearly defined general merchandise ranges have in our brands and from the ability to across Sainsbury’s, Argos and Habitat, of cost price pressures offer our customers great value and choice offering our customers the best choice and remains uncertain. However, across multiple product categories and quality at fair prices. we are well placed to channels. We are well placed to increase customer loyalty across food, general Our Tu clothing business provides high street navigate the external merchandise, clothing and financial services, style at supermarket prices and eight million environment and remain customers buy our clothing. Our market driving sales, profit and maximising the focused on delivering our opportunities for growth to create value share by volume increased by 20 basis points for all our stakeholders. and we are the sixth largest clothing retailer strategy.” by volume in the UK, with a strong position To focus on our four key priorities we have in womenswear and childrenswear and Mike Coupe Chief Executive Officer, closed Netto, Sainsbury’s Entertainment and opportunities for future growth in menswear. J Sainsbury plc our Phone Shops. We are integrating Argos in to our business at pace. The 59 Argos Digital stores located Four key priorities for growth in Sainsbury’s supermarkets are performing Our strategy remains based on five pillars well and sales in stores open for more than a (see page 11). Within this we have prioritised year are delivering like-for-like sales increases four key areas of our business where we can of between 20 and 30 per cent. Reflecting differentiate ourselves, grow and create value: the strong performance of the Argos Digital stores, we are accelerating our plans to open 1 Further enhance our the planned 250 Argos Digital stores six differentiated food offer months ahead of schedule. We continue to invest in our core Food business and to focus on the quality of Our 207 digital collection points offer Sainsbury’s branded food products. We have customers a fast, convenient delivery removed multi-buy promotions across our service across eBay, DPD, Tu clothing and, food ranges in favour of lower regular prices in 90 stores customers can also collect Argos and we invest in our prices to ensure we offer deliveries. This gives customers the flexibility customers value for money. We will always to pick-up their parcels when it is convenient be competitive on price. to them and drives footfall in to our supermarkets. Sainsbury’s has a strong heritage of innovation in key products and categories. 18 per cent of Group sales at peak times now For example, we were the first retailer of originate online and our strength in digital, organic produce in the UK. We continue to combined with Argos’s leading delivery innovate, targeting growing food categories services, including Fast Track, will enable us where we can increase our market share, to grow both now and in the future and give such as Food to Go and Free From, where we us a crucial competitive advantage. can build on the trust customers have in the Sainsbury’s brand to develop and strengthen 3 Diversify and grow Sainsbury’s Bank our offer and become a market leader. Sainsbury’s Bank continues to grow and generates strong customer loyalty. We know We regularly review the layouts of our stores that people who buy our financial services so that customers can do their shopping products shop with us more frequently and with us quickly and more conveniently. We spend more money than those who do not, are investing in our Groceries Online service, giving us a strong platform for growth. We improving the customer experience on our have integrated Argos Financial Services in website and expanding our Click & Collect to Sainsbury’s Bank. There is opportunity for service. Demonstrating the speed of change this to give us a significant boost in customer within retail, the Groceries Online shopping base and operations and we are injecting app we launched in May 2016 now accounts additional capital in areas of Sainsbury’s for over ten per cent of online food orders. Bank which will generate good returns. Sainsbury’s Bank is well set to deliver strong profit growth. Strategic Report 13 4 Continue cost savings and maintain We are optimistic about balance sheet strength the future Read about our key priorities on In line with other UK retailers, we anticipate Our success relies on knowing our customers the following pages: that cost pressures will continue over the better than anyone else. We must offer them Priority #1 next few years. The price of raw materials what they want now and anticipate what Further enhance our and energy is increasing, along with wages they will want in the future, across food, differentiated food proposition and business rates.
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