What is it about Sainsbury's?

Another impressive performance.

As expected Sainsbury’s has notched up another impressive performance across its full financial year, with LFL sales up by 1.8 per cent and profit growth in line with City expectations.  

A key driver of this success has been the development of Sainsbury’s own-label architecture, which has afforded it the ability to flex its offer to fragmenting consumer demand which has seen the simultaneous growth of both the value and premium ends of the food market. Its Basics and Taste the Difference sub-brands address the polar ends of the market well, while the re-launch of its mid-tier By Sainsbury’s sub-brand has appealed to shoppers seeking price competitive alternatives to branded products. 

This balanced positioning has been complemented by targeted discounting, that encourages loyalty without widespread damage to margins. Sainsbury’s has notably achieved this through its Brand Match and leveraging its Nectar card programme for sales promotions. Moreover, while Tesco’s Price Promise offers a functional threat to footfall, "value-for-money" is at the heart of the Sainsbury’s DNA, as part of its Live Well for Less push. This is evident in creative campaigns such as "Feed Your Family For A Fiver", that have served to strengthen value credentials.

Taken together, the well segmented range and the targeted promotional activity is insulating Sainsbury’s in a climate where consumer loyalty is fickle and hard discounters are excelling.

Supporting these brand developments has been a store strategy which is suited to emerging market dynamics.  Sainsbury’s has traditionally had less of a focus on hypermarket formats compared to Asda and Tesco and has thus not been as impacted by the more negative performance of these store types. Instead its convenience-led strategy has paid dividends, with sales growing 17 per cent across this format, following the opening of a further 87 convenience stores during the year.

Wider afield, Sainsbury’s is also reaping the rewards for investments in its supply chain and procurement systems. Its close relationships with farmers, which has included an investment of £40 m in Farmer Development Groups since 2006, has ensured it has traceability and integrity. This helped Sainsbury’s avoid being engulfed in the horsemeat scandal, as many of its competitions were. 

Sainsbury’s also has a compelling growth story to tell in other areas of its business. Annual online grocery sales are now approaching £1billion, growing nearly 20 per cent over the year. Elsewhere, its non-food offer is relatively immature compared to its supermarket competitors; its general merchandise and clothing sales continue to grow at more than twice the rate of food, offering future scope for growth. In addition, with the announcement that the it is acquiring Lloyds Banking Group’s 50 per cent shareholding in Sainsbury’s Bank, Sainsbury’s has further opportunities to further leverage its brand loyalty at a time when consumers still lack confidence in core financial institutions.

On the horizon, Sainsbury’s does face both immediate and longer term challenges. Strong comparatives will undoubtedly provide a challenge, particularly considering the wider economic backdrop. Tesco’s resurgence is also a threat, as its own investment programme in own brand, store strategy and price competitiveness gathers pace. More pertinently, rumours of chief executive Justin King’s departure,  have caused some uncertainty among investors. That said for now at least, its proactive approach to evolving shopping trends leaves it ideally placed to make further market share gains.

Photograph: Getty Images

 Managing Director of Conlumino

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Is anyone prepared to solve the NHS funding crisis?

As long as the political taboo on raising taxes endures, the service will be in financial peril. 

It has long been clear that the NHS is in financial ill-health. But today's figures, conveniently delayed until after the Conservative conference, are still stunningly bad. The service ran a deficit of £930m between April and June (greater than the £820m recorded for the whole of the 2014/15 financial year) and is on course for a shortfall of at least £2bn this year - its worst position for a generation. 

Though often described as having been shielded from austerity, owing to its ring-fenced budget, the NHS is enduring the toughest spending settlement in its history. Since 1950, health spending has grown at an average annual rate of 4 per cent, but over the last parliament it rose by just 0.5 per cent. An ageing population, rising treatment costs and the social care crisis all mean that the NHS has to run merely to stand still. The Tories have pledged to provide £10bn more for the service but this still leaves £20bn of efficiency savings required. 

Speculation is now turning to whether George Osborne will provide an emergency injection of funds in the Autumn Statement on 25 November. But the long-term question is whether anyone is prepared to offer a sustainable solution to the crisis. Health experts argue that only a rise in general taxation (income tax, VAT, national insurance), patient charges or a hypothecated "health tax" will secure the future of a universal, high-quality service. But the political taboo against increasing taxes on all but the richest means no politician has ventured into this territory. Shadow health secretary Heidi Alexander has today called for the government to "find money urgently to get through the coming winter months". But the bigger question is whether, under Jeremy Corbyn, Labour is prepared to go beyond sticking-plaster solutions. 

George Eaton is political editor of the New Statesman.