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A common theme runs through our Group.
The commitment to offering high quality,
value for money products that meet our
customers’ needs, in a way that is friendly,
responsive and convenient. In keeping with this
commitment, each business has a clear strategy
and determination to broaden its appeal,
increase efficiency and substantiate its offer.
Strong profit growth at Homebase and Shaw’s
has contributed to an overall increase in
Group profit. We recognise the key to future
profitability is to increase sales and cost
effectiveness in our UK food business.
Our objective is to be a leading international
food retailer, with a successful UK DIY,
horticulture and home enhancement business.
The initial success of the Bank demonstrates
the potential that exists in applying the
Sainsbury brand to other consumer
product offers.
The emergence of Homebase and Shaw’s as
formidable competitors within their markets is
evidence of the Group’s ability to transfer its
considerable retail skills across both market and
international boundaries. Their recent successes
are a robust testament to the Group’s ability to
tackle and resolve problems. But undoubtedly,
confidence in the Group is closely linked to the
performance of its largest component.
4 J Sainsbury plc Annual report and accounts 1999
Group Chief
Executive’s review
It is, therefore, vital that our UK food business
has a solid platform for sustainable growth.
I have been active this year in honing the
economics of our businesses, investing in
activities which add value, and positioning each
of our businesses to compete successfully
in tough markets. It is clear that in order to
maximise the Group’s profit potential we must
take decisive action to cut costs out of our
businesses permanently. We must create a
leaner and fitter corporate structure, and
sharpen our corporate culture and working
practices. We have already taken significant
steps to achieving this.
We will also create value for shareholders by
expanding our business outside the UK. Our
proposed acquisition of Star Markets, New
England’s fifth largest food retailer, forms
a natural addition to Shaw’s in terms of
geographical locations and core competencies.
Taking control of Giant Food Inc. was not
essential to our strategy and during the year
we sold our holding for over $600 million,
representing a profit of £84 million.
Success in the USA is not the limit of our
international ambitions and our firmly
established world-class retailing skills will drive
expansion into other regions. To date we have
taken a 25 per cent share in Edge, a chain
of 80 small stores in Egypt.
We seek to generate superior
value for shareholders and
customers on a sustainable basis
and we are now aligning our
strategy, management processes
and performance measures
to this purpose.
Performance of the Group businesses
Sales at Sainsbury’s Supermarkets increased by
4.6 per cent to £12.1 billion with like-for-like
growth a disappointing 2.2 per cent. Naturally
this shortfall affects our performance against
most key financial targets. Operating profit was
adversely affected and was £714 million.
This caused us to miss the net margin and
return on net assets targets set at the start
of the year.
It is clear to me that we need to change
customers’ perception of value, choice and
service at Sainsbury’s. Changing the value
perception will take time and money – we will
continue to invest gross margin in promotions
and lower prices, while still strengthening our
lead in quality. Our cultural change programme
and the restructuring of our cost base will also
help to improve the customer service elements
of our value offer. Better management of space
and a major five year investment plan for store
extensions and refurbishments will further
improve service for customers, and widen the
choice of products available in our stores.
Improving our operating efficiency and
effectiveness is now a way of life at Sainsbury’s
and we have increased the scope and pace of
our cost reduction programme, reorganising
store, regional and London office management
structure, as well as identifying many