IT’S not been an easy 2013 for Britain’s supermarkets. From January’s discovery of horsemeat in the UK food chain to the disastrous collapse of a Bangladeshi clothing factory in April, retail bosses have been forced to step forward and explain themselves – all against the backdrop of stretched consumer spending and rising food prices.
Despite not being implicated in either scandal, the Sainsbury’s boss Justin King has been one of the industry’s more vocal advocates over the past eight months, speaking out about the lessons retailers have to learn from these disasters and the importance of winning back customers’ trust.
“Nobody could be 100 per cent sure that they wouldn’t be affected by the horsemeat scandal,” he tells City A.M. at the group’s head office in Holborn. “A raw material was in the supply chain that shouldn’t have been – once that happens the potential for cross-contamination is always there.”
As a result, he says, the industry as a whole has had to rethink its approach to DNA testing – something Sainsbury’s has been doing for years in combination with isotope tests, an in-depth measurement that allows firms to identify the country of origin of a piece of meat.
The source of Sainsbury’s products – or provenance, to use the industry moniker – is something the 52-year-old brings up again and again. He mentions it in relation to the company’s refusal to source from mixed-use factory buildings (“There is no point checking whether a clothing factory on the 5th floor of a building has fire extinguishers when you don’t check the 4th and 6th floor”) and to the ongoing war of words with rival Tesco over its own-brand advertising.
On the morning we meet, the Advertising Standards Authority has just rejected a challenge that Sainsbury’s had brought to a series of Tesco advertisements claiming its own-brand products are cheaper than those sold by rivals. King’s anger is directed towards Tesco’s direct comparison of products that he believes have crucial differences, most notably where they come from.
“We believe that it is unfair to price compare products that do not have the same profits,” he explains. “But it doesn’t matter what we believe, it’s what consumers believe, and consumers completely believe that provenance is important. If you went outside and stopped the first 10 people and asked ‘Do you believe that there is a difference between ham that is British-sourced and ham that is European-sourced?’, nine out of 10 would say that British is better.’”
In retaliation, the grocer has launched its “Same Price, Different Values” campaign and is appealing the ASA decision. One gets the impression this is a row that isn’t going away anytime soon.
As household incomes continue to be stretched, it may seem strange that retailers are spending so much time – and money – on fighting the quality corner. But King insists the drive is not counterintuitive, and that customers are more insistent than ever that value for money isn’t based solely on price.
“All the major trends in values in food have continued growing during the downturn – be they fair trade, marine stewardship or forestry stewardship,” says King.
He is in no doubt, though, that his customers’ purse strings are still noticeably tighter than before the recession, despite a recent flood of upbeat data that seems to put the UK firmly on the path to recovery.
“It is undoubtedly the case that the news that we are getting about the economy is positive ... but if you look at consumer household incomes, they’re not growing. A more positive outlook for the recovery is a good thing, but day to day they still haven’t got more money in their pockets.”
Notwithstanding King’s refusal to call the recovery until he can see evidence of it filtering down to the shop floor, Sainsbury’s has weathered the crisis well. Since he took the CEO job in 2004 amid investor unrest and falling sales – implementing a six-month business review that led to the “Making Sainsbury’s Great Again” recovery plan – the company has reported 34 straight quarters of like-for-like sales growth. Its first quarter figures, released in June, showed a 3.6 per cent rise in total sales and another increase in market share – up 0.2 per cent to 16.8 per cent. When compared to the beginning of his reign, when market share was 15.3 per cent and falling, the UK’s third biggest retailer seems to have come through the crisis stronger than ever. As King himself puts it, “we must be doing something right”.
Right enough – for now – to maintain the support of its major shareholders, a high-powered group of whom the largest is the Qatar Investment Authority with a 26 per cent stake.
Though bid rumours have circled the supermarket on and off since an aborted attempt by the Qataris in 2007 to launch a takeover, King maintains the only time the subject comes up is in interviews, and plays down the events of six years ago.
“We refer to 2007 as our year of non-bids,” he says. “Although there was a huge amount of speculation, there never was a bid.”
With Sainsbury’s firmly focused on the UK, King says the main threats to future growth now come from overseas – namely the Eurozone crisis and rising food commodities prices – but there are still some issues closer to home that he is keen to push to the top of the political agenda.
In recent months he’s become part of a growing crowd of high-profile retail bosses who’ve spoken out against the uneven playing field for traditional UK retailers compared to their online counterparts when it comes to tax. The argument goes that because bricks and mortar stores incur hefty business rates, a rebalancing is needed to acknowledge the fact they contribute more directly to local communities.
In particular, much has been made of a recent US initiative to spread the load by forcing online retailers to apply sales tax to their products and services, but King insists that the comparison is a flawed one.
“My views have been completely misrepresented. I haven’t – and I don’t think anybody else has – ever advocated an online sales tax. The relevance of the US is simply that they are addressing the fact that online businesses don’t pay local taxes.
“Not only do we pay business rates at a local level but we employ people locally, we pay people locally and they spend their earnings locally. If we are seeing a shift in consumer behaviour towards purchasing online rather than their local store then the government will have to address that the tax system is being usurped by a change in behaviour.”
It’s a change in behaviour, of course, in which Sainsbury’s itself is a participant. Online sales now make up around four per cent of its sales and, along with convenience stores, are by far the fastest growing parts of the business. But King insists that doesn’t mean traditional stores should be abandoned, citing research showing that within a year of starting to shop online, customers are also spending more in store, and are more loyal to their chosen brand.
With his 10-year anniversary coming up next year, loyalty is clearly something close to King’s heart. He’s one of the FTSE’s longest-serving CEOs and seems more than happy to keep it that way, insisting that despite rumours of an imminent exit – Sainsbury’s recently confirmed it has retained headhunters Egon Zehnder to prepare for his departure – the succession plans are merely the mark of a well-prepared company.
His office certainly looks like the workspace of a man who’s not planning to go anywhere soon. The walls are plastered with memorabilia of a decade at the top – from a signed David Beckham shirt (the footballer is the face of the Active Kids campaign) to one of the supermarket’s own Brand Match vouchers. The latter was introduced in 2011, using technology to calculate whether a customer would have spent more or less had they shopped elsewhere and offering them the difference off their next visit. The framed voucher on King’s wall is for a huge £150-odd saving – “I was stocking up on champagne when it was on a deal” – but day-to-day he says it’s a crucial means of convincing customers they haven’t missed out on a better deal elsewhere.
And as he leaps up to say goodbye, his energy seemingly undented by the pile of customer letters he insists on ploughing through every day or the shop floor visits that are a weekly ritual, King gives the impression that he is finding more than enough value in his current position to convince him of the same.
CV: JUSTIN KING
Attended Tudor Grange Grammar School in Solihull then took a business administration degree at the University of Bath
1983: Graduate trainee, Mars
1990: Various roles at Grand Metropolitan, including leading the UK launch of Haagen-Dazs as the brand’s managing director
1994: Rose through the ranks at Asda to become retail managing director
2001: Director of food, Marks & Spencer
2004 - present: Sainsbury’s chief executive