Sainsbury’s is growing its market share in a fiercely competitive environment – and, as the supermarket’s chief executive Justin King tells Pip Brooking, it all comes down to trust.
Businesses are in “complete denial” that they are broadly seen as a force for bad, says Justin King, chief executive of retail giant J Sainsbury. And as head of a company that has a vision of becoming “the most trusted retailer”, King has taken it on himself to speak out for his industry and the wider business community in an attempt to improve its reputation.
The banking crisis, tax avoidance, the horsemeat scandal and rising energy prices have all been catalysts for damning debate, he says. But he believes that the roots of it are far deeper than most people care to admit. “We didn’t have that well of trust, which we clearly believed we deserved, to draw on when things went wrong.”
He points to tax as a long-term issue – and he argues that consumers are more powerful than governments in changing the attitude of organisations towards paying tax as a moral responsibility, rather than just a legal one.
“I’m a great believer in the power of consumers and their wallets,” he says. “If you believe what you do would stand the test of your consumers, be open and public about it because you should have nothing to fear from them.”
And he draws parallels between the 20 per cent personal tax rate, and the 20 per cent level that corporation tax is heading to by 2015, to suggest that it’s only fair for businesses to pay what is essentially an “elective tax” for any international firm.
It’s not all King has to say on the topic of tax, as he feels that domestic bricks-and-mortar retailers are unfairly burdened by business rates (see box), but in other areas where trust has reached crisis levels – in banking and energy – King believes that Sainsbury’s can benefit because of the type of relationship the company has with its customers.
Sainsbury’s Energy saw customer numbers increase by 83 per cent in the year to March, while active bank customer accounts grew by eight per cent. He explains that the cost of acquiring new customers for these services is less for Sainsbury’s than for companies with a single business focus, which means it can pass on lower costs.
And, by knowing their shopping habits, King says that Sainsbury’s can also reward and incentivise consumers in different ways – with coupons for cat food when they take out pet insurance, for example. Asked if he thinks the supermarket can be seen as more trustworthy than the big players in these areas, he says: “We do, but we have to be worthy of that trust. If you’re handling people’s money that’s in a very different space from handling their baked beans and bananas.”
Although Sainsbury’s is now taking full ownership of the bank (it was a 50:50 joint venture with Lloyds), King says it will continue to focus on insurance, credit cards and loans, rather than current accounts and mortgages – as in these areas “it has the ability to deliver value for customers in a way that some of our competitors in banking will struggle to do”.
Standing up to scrutiny
But when it comes to the supermarkets’ bread and butter, the issue that has really put their credibility in the spotlight has been the horsemeat scandal, which reared its head in January. Although Sainsbury’s was not directly affected, King was vocal in defence of the industry against any regulatory backlash – after nearly ten years at the company, he’s seen as the elder statesman of the grocery industry.
“Nobody, however much care they were taking, could be 100 per cent sure they were not going to have horsemeat because a crime had allegedly been committed,” he says. But Sainsbury’s has been DNA testing for more than ten years, isotope testing for the past three and it audits all of its factories, King explains. “We were confident we were doing the right things.”
The same goes for the Rana Plaza factory collapse in Bangladesh in April – Sainsbury’s could be sure its business was not affected because it has the names and addresses of all the facilities it uses, has visited them, and has never approved a non-exclusive, multi-storey facility in order to be sure that the building as a whole meets fire safety standards.
“Companies that have suffered most on these trust-type issues are those that aren’t able to demonstrate that they were addressing the issue before it became an issue,” King says. And rather than being directly critical of others, he’d prefer to “tell our own positive story and encourage customers to ask others whether they can tell the same positive story”.
Of course, King has a great story to tell, with 35 consecutive quarters of like-for-like sales growth which has helped the supermarket gain market share at the expense of its rivals. The grocer’s expansion plans will see the number of convenience stores outnumber supermarkets in this financial year as consumers do more top-up shops to cut waste and save cash.
Online Sainsbury’s has found itself in the number two spot behind Tesco, growing 15 per cent in the second quarter of 2013 to surpass the £1bn mark – a milestone it has also reached for non-food sales as it expands its range.
But that’s not the story that will impress customers, even if they are driving this growth. Like many businesses, Sainsbury’s has set out its corporate responsibility agenda in its 20x20 commitments. And within this, King says the company’s 157,000 “colleagues”, rather than the supply chain, are his first priority.
“As corporations we say time and time again that we’re a force for good, that we create jobs. We employ people, that’s what creates wealth and that’s what creates taxes. But how many businesses can point towards stretching targets that they’re setting themselves about improving the quality of the working environment?”
Sainsbury’s created 5,000 jobs in the year to March, and aims to create a total of 50,000 between 2011 and 2020. But with 23 million customers each week, “how we treat our colleagues impacts on the experience they get in our shops”, he says.
The price is right
Nevertheless, Sainsbury’s battle with Tesco highlights that provenance and other supply chain issues are of great importance. The two have come to blows over their price comparison schemes.
Sainsbury’s Brand Match compares the price of branded products, and gives customers a coupon if they could have bought the goods cheaper elsewhere. It excludes own-label products, because Sainsbury’s doesn’t think it’s fair to compare its fair trade tea or British pork with other supermarkets’ regular tea or pork sourced elsewhere in the EU – which Tesco does in its Price Promise.
And research by Sainsbury’s has found that 80 per cent of consumers agree. “You can’t have a half-commitment to values,” says King.
Currently, the Advertising Standards Authority is siding with Tesco – leading King to take the battle to the High Court.
The ASA also recently upheld two complaints against Sainsbury’s “end of shopping around” claim – because Price Match compares the total cost of a branded basket, and customers could get their shopping cheaper still if they bought some offers in Asda, some in Tesco and some in Sainsbury’s.
“The ASA finding is narrow and I think it would bemuse most customers,” says an obviously frustrated King. “But the issue for us is more a wider one about price: there is a complete misunderstanding that the hard-pressed customer becomes single-mindedly obsessed with price,” he continues. “Customers are really looking for value for their values – they’re not prepared to compromise their values in the pursuit of price.”
This is where King sees Sainsbury’s as having the upper hand, and its own-label sales have grown at double the rate of branded goods thanks to additional investment. “The fact that Sainsbury’s is the fastest growing of the big four grocers, and has been for a while, is a reasonable measure that we’re getting more right than we’re getting wrong,” he says.
But he doesn’t like being asked about competing with his retail rivals. “What matters is how good a job we’re doing for the customers we’ve already got,” he says. “Too many businesses seek to define themselves by the people that they’re competing [against], rather than who they’re competing for.”
King is adamant that businesses have a moral responsibility when it comes to the corporation tax they pay, but he thinks it’s less than fair that the current tax system burdens domestic, bricks-and-mortar retailers disproportionately. His name is often cited against calling for an online sales tax, similar to that being proposed in the US. But he says his argument is more nuanced than that.
“Business rates are a legacy tax that is completely disconnected from the way retail is developing in the UK,” he says. “Tax as dictated by the state should not be part of competitive advantage. No amount of argument from any business saying they pay other taxes ‘so it’s okay’ cuts any mustard, because we all pay those taxes.”
Without mentioning the words “internet” or “online”, he says that he is calling for a fundamental review of how business activity is taxed and it can’t be purely space-related. Aside from anything else, there will be fewer businesses to pay rates in the future, he explains.
He also points out that the services business rates pay for, including waste collection, contribution to schools, emergency services and local road repairs, are used by all corporations. “Retail generally over-contributes,” he adds.
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