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Justin King on real-world retail, high street shopping and international expansion

Updated Thursday 5th July 2012

How are Sainsburys stores so busy in an internet age? Can the chain help UK high streets thrive? And are there any plans to follow Tescos overseas?

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Sainsbury's CEO Justin King was talking to Leslie Budd after the recording of the 5th July 2012 edition of The Bottom Line.

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Leslie Budd

Justin, there’s been a lot of hype about online retail, but your supermarkets and your stores always seem full.  Is there something special about grocery retailing?

Justin King, CEO Sainsbury’s

Well I think there is something special about groceries, but that’s not to downplay what’s been happening with online.  It’s been a big part of the industry’s growth in recent years.  It’s probably about a quarter to a third of the growth in groceries today is online, but that’s off a base which is about 4% of the market.  So you can see, the hype if you like is because there is so much growth coming from it, but the reality is it’s about 4% of the market.  And I think there are good reasons for that.

Some of them are practical; you do have to be in.  It’s not like some other product sectors where online has become dominant, you know, where you can pop a book or a DVD through a letterbox, you know, you do have to be in for your groceries.  But I think more importantly for most customers it remains the case today, and I believe as far forward into the future as one can see, that they enjoy their food shopping.  It is a great experience in the UK, we have the best supermarkets in the world, and the majority of our customers who shop online do so to solve a problem of time pressure usually, but still shop in store as well.  They don’t replace the in-store experience.

So I think we’ll see groceries be very resilient.  Even if the market grew at let’s say 20% a year, the online market, which it is today growing at, in ten years’ time it would still be less than 10% of the grocery market, and I think that would be at the top end of expectation that we would have about how fast and how far online groceries will grow.

Leslie Budd

Out of town shopping malls have been blamed for the death of the high street, but has the development of Sainsbury’s Local actually helped revive it?

Justin King

Well I think I’d challenge the sort of thesis in the question.  Out of town shopping malls have reflected changes in consumer behaviour.  They're successful because that’s where customers choose to shop, and so if we’re trying to understand why it is that high streets, and many of our high streets are clearly struggling, then we should look at what it is about them that has made them unattractive destinations to consumers.  And I think that there are many reasons, but let me name a few.  Access is often difficult, the advent of parking controls have made it difficult to get close to the shops you want to go to, often costly too, because there’ll be parking charges, and often the infrastructure’s not been well invested in over time.  These are not anywhere near as pleasant environments to go to often as a shopping mall in terms of they’re being under cover, feeling safe and secure, and so on.

So I think if our high streets are to survive and thrive, they will need to address that lack of competitiveness.  All of that said, we’re actually seeing independent stores open faster than they're closing today, because of course with lots of empty units landlords I think are taking more practical views of the rent that they can get, and that’s attracting people to get started back in high streets.  And we’re part of that story, with Sainsbury’s and Tesco and some of our other competitors in opening local stores.  We’re closer to where people live and work.  It’s a big change in consumer shopping behaviour, doing a slightly smaller big weekly shop, topping up through the week when you need it, and we’re reflecting that, and we tend to become an axis of regeneration.

The many thousands of customers that come to our local stores then become sales opportunities to our adjacent retailers, and a Sainsbury’s Local store, there’s a clue in the name, are very local in their impact, most of our trade comes on foot within a quarter of a mile of the store.  So actually yes, we can be and are being in many high streets up and down the country part of that regeneration.

Leslie Budd

And finally can a very successful British brand like Sainsbury’s have the same impact in overseas markets, if you develop there?

Justin King

Well we have been abroad in the past.  Sainsbury’s had a business in Egypt; it had a business in America.  Part of the restructuring of the business that I led some years ago sold off our international business to focus on our core business.  And there’s first an important point to make is that retailers tend to struggle internationally unless they are absolutely on their game domestically, and we had to make sure first and foremost we were on our game domestically.  But I think there is a wider point, if you're a grocery retailer, you're selling primarily food, food tastes vary wildly.  Even within the UK we have to range differently in London to Birmingham to Manchester to Glasgow, very different ranges to reflect tastes.  So, if you internationalise a food retail business, you have to make sure that you're still able to understand, reflect and respond to those local tastes, and that’s a very difficult challenge.

So I'm not saying never, I'm not saying don’t, but I'm saying that the case is not straightforward nor easy, and I think just like any business that internationalises, the question you have to ask yourself is do you bring some unique skills to that marketplace that the consumers in that marketplace would value, and that the existing businesses in that marketplace are not delivering?  And the thing that UK supermarkets are best at is supply chain.  It’s our ability to reach across the whole of the world, bring a wide variety of high quality, great value for money food, all into one place in one supermarket, and that’s not unique in the world but it’s certainly world leading.  And that’s probably the axis that will, if we or indeed any of our competitors in the UK, are to be successful internationally, that’s the axis that that success will be based on, that unique reach into the supply chain and ability to deliver particularly own label product that’s safe, healthy, fresh and tasty, to customers who at the moment aren’t being served by their existing domestic retailers.  But that’s some way off for us at Sainsbury’s, I would suggest.

Leslie Budd

Justin King, thank you very much.

Justin King

Thank you.

(6’29”)

 

 

 

 

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