The supermarket boss insists that he only wants to overtake Asda – but the Grand Prix rumours won’t go away
As the horsemeat scandal reached its peak in February, the bosses of Britain’s biggest supermarkets and suppliers were summoned to Whitehall to explain themselves.
Packed into a Defra meeting room on a Saturday morning, the shopkeepers were given an almighty dressing down and ordered to take responsibility for one of the biggest food adulteration revelations of recent years.
Among them was Justin King, at 51, and after nearly a decade at the helm of Sainsbury’s, regarded as the elder statesman of the grocery business. He was, he says, determined not to take the criticism lying down. He accused government officials of failing to understand the industry, and even threatened to call on the prime minister to demand a ceasefire.
Three months on, with horsemeat found in beefburgers, bolognese sauces, lasagnes and corned beef – but not in any Sainsbury’s products – King still recalls the behaviour of those running the country with exasperation.
He said: “That moment was when politics and business were at their most tense, because politicians felt they had to be saying something. The reason no one was saying anything was because we were doing the responsible, trustworthy thing, which is understanding the issue before we shouted about it, while the dynamic of politics is the opposite.
“In business, we understand it and then we talk about it, while in politics they talk about it and at some later date work out whether their understanding fits with what they said about it some weeks before.”
It was perhaps surprising that King wanted to take such an active role in tackling the scandal on behalf of the industry, given that his own supermarket group had come through unscathed while bitter rivals Tesco and Asda were caught out.
But the new old man of retail, having worked for PepsiCo, Marks & Spencer and Asda before his nine years at Sainsbury’s, says he has seen far worse and that the public is not quite as worried about horsemeat as might be expected.
“We’ve had foot and mouth, bird flu and BSE, all of which were examples where the supply chain was challenged, so this is nothing new. It’s all about trust and acting in a trustworthy way.
“People are pretty realistic. If you Google horsemeat, [a lot of the hits] are horsemeat jokes. So there was an immediate juxtaposition in the consumers’ minds that it was serious but they got a lot of enjoyment from it, too.”
However, King is keen to stress that businesses must stop feeling sorry for themselves and realise that the customers are victims too.
“I don’t think it is fair enough for retailers affected to say they were victims. I had a very simple view – which is that I’m on the same side of the table as the customer.
“The second you say you’re a victim in this situation, even when you are, you put yourself on the wrong side of the table. The real victims are the consumers, who have paid their hard-earned cash.”
This week, the City will see that Sainsbury’s has been largely unaffected by the scandal. Full-year results released on Wednesday will show sales up 4.6% to around £25.6bn, with underlying pre-tax profits expected to be up 5% to £748m.
The focus may now have moved away from horsemeat, but City investors will be keen to learn more about King’s future. He has been touted as the next boss of Formula One, when Bernie Ecclestone hands over the keys to the world’s most glamorous sporting franchise.
Last weekend that speculation reached a new pitch after the supermarket confirmed that headhunters Egon Zehnder had been retained to advise on King’s successor. Sources inside the company suggest the process could take a year and that the process is merely a matter of good management.
King refuses to quash rumours that he is interested in the F1 job – he only ever says that he is “not aware of a vacancy”. He is a huge racing fan and has helped his son Jordan to become one of the most promising drivers of his generation.
But if the call from Ecclestone, F1′s diminutive owner, fails to come, a career in politics might appeal.
King is a former board member of the London Organising Committee of the Olympic and Paralympic Games, and was a member of David Cameron’s business advisory group – before they fell out over King’s objections to government plans to allow new staff to surrender employment rights in exchange for shares.
However, poor pay in the public sector could prove a sticking point for the businessman, who earned £3m last year – 20 times more than the PM.
On the subject of King’s future, analysts at Barclays wrote: “No CEO remains forever, and at some point Justin King will prove the press predictions correct and move on. However, he may be keen to be in charge when Sainsbury’s regains its number two market-share position from Asda – his former employer.”
That could happen later this year, after a remarkable 33 consecutive quarters of growth.
According to industry data from Kantar Worldpanel, Sainsbury’s is outperforming its rivals as the only big four supermarket to be increasing its market share. The grocer now accounts for nearly 17% of all the money spent on groceries in the UK, a slight rise on last year, at a time when Morrisons, Asda and Tesco all lost customers.
Sainbury’s successful Paralympics sponsorship, leading position in convenience stores and growing online presence have also helped, while Tesco’s decision to open no more megastores, and write off £800m on land it had bought for new developments but will now never use, may also give King cause to crow.
He was always angry about Tesco’s land-grab. “If you’re acquiring a site just a mile from an existing site, are you doing it because you think it’s valuable to trade, or because it stops a competitor?”
And his vitriol for the number one supermarket doesn’t stop there. He is equally scathing about Tesco’s new price promotion, which promises shoppers that Tesco’s prices for own-label and branded goods are cheapest. Having complained directly to Tesco and failed to reach a compromise, Sainsbury’s has now appealed to the Advertising Standards Authority. “We have exhausted everything we could with them [Tesco], so were left with no choice but to go to the ASA,” he says.
“You can’t have advertising saying that where your chicken comes from is important, while at the same time still sourcing your chicken from Thailand and Brazil, and then doing a price comparison with Sainsbury’s chicken, which is sourced from the UK. That is inherently unfair.”
Tesco said: “We use an independent agency to check prices of branded and own-label products at other retailers – online daily for Asda and Sainsbury’s, and, since they don’t have an online grocery service, twice a week at Morrisons stores. The basis for our comparisons is made clear on the price promise website.”
This may not be enough to soothe King’s feelings, but perhaps he will soon be directing his passions elsewhere. Less horsemeat, more horsepower?
Supermarket teams up with council to give out ‘crisis welfare payments’ to neediest residents in form of prepaid cards
Asda has joined the UK’s biggest local authority to provide emergency welfare to some of the country’s poorest people.
Birmingham council, which represents around 1 million people, said that from 1 April Monday it would give out crisis welfare payments in the form of prepaid cards that could be redeemed only in Asda supermarkets.
The Labour authority said the cards – which Asda said were similar to their gift cards – would restrict spending to a list of predetermined goods, which would exclude tobacco, alcohol, phone-related expenditure and fuel.
As part of welfare changes in April, local authorities will take over running the non-statutory emergency welfare loans and grants known as the social fund, which are meant to help people deal with crises such as leaking roofs, broken boilers and lack of food.
After the Department for Work and Pensions said it would no longer administer social fund payments centrally, Birmingham said that, unlike other councils, it had decided not to give out small one-off cash grants and loans from its newly devolved £6.1m fund.
Instead it would offer prepaid Asda store cards and directly provide bigger items such as white goods to those in emergencies.
Last year the fund, described by Labour peer Lady Lister as “a safety net under the safety net”, helped more than 50,000 people in financial crisis in the city.
The council said it was working out how to stop people purchasing inappropriate items but said the cards were not food vouchers or tokens, and were indistinguishable from other prepayment cards accepted by supermarket chains.
Other councils have said they would also use voucher schemes or plough their social fund budget into food banks. But Birmingham appears to be the first local authority to pair up with just one supermarket chain.
Asda, which is owned by US retail giant Walmart, said its low prices offered an “efficient use of the public purse”.
Asked why Birmingham was restricing choice by partnering only with Asda, a council spokesman said the chain had been “the only main supermarket in the city willing to work with the council”. He said the council hoped the scheme would be extended to other stores after a period of evaluation.
“The scheme is being introduced and will be closely monitored and evaluated for the first three to six months. This is so we can assess how the scheme is being used, by whom, and the levels of grant, crisis payments and overall expenditure.
“This will entail very close working with the supermarkets to address any issues that arise and make further improvements .”
The council added it had decided not to issue cash payments in order to “build in an element of control by utilising payment cards”.
Asda said: “We responded to an approach from Birmingham city council, which was looking for a simple way of delivering social fund payments to claimants.
“Making money available via Asda gift cards rather than cash is a safe way to ensure claimants have access to a huge range of products at low prices, and is an efficient use of the public purse.”
Claudia Wood, deputy director of thinktank Demos, said that by using store prepayment cards, it was not possible to stop people spending on certain products. “In a supermarket you can also buy alcohol, toys, pet food, lottery tickets, everything else … you can’t stop particular products.”
Wood, who recently wrote a report on prepay cards and the benefit system, said that – aside from officials going through receipts retrospectively – the only other way to ensure spending was restricted to certain items was to get checkout staff to monitor goods as they were being bought.
“The only thing you could do would be to have someone at the checkout picking out the things you’re not allowed to use. But … the idea that checkout staff would be enforcing government policy is just ludicrous.
“[It would be] a massive inconvenience, really humiliating at the checkout, a massive imposition on staff to apply that ruling … It just wouldn’t work … I don’t think the supermarkets would stand for it.”
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Supermarkets divided on the merit of dotcom-only stores, warehouses or picking from high street shelves
Branches of Waitrose are usually found in only the most chichi of neighbourhoods but its west London branch is in such a grim area – on the edge of the Hangar Lane gyratory system – that even the buildings apologise to passersby.
Its neighbour, another squat 60s-style council block occupied by the posh catalogue firm Boden, has a sign hanging outside saying “ugly building, beautiful clothes”.
It’s just as well no shoppers will ever wheel their trolley over the threshold. It’s one of a new breed of so-called “dark stores” or dotcom only stores springing up around the country to satisfy Britons’ insatiable demand to shop for groceries from the comfort of their sofa rather than make the weekly shlepp to the supermarket.
For foodies who seek out Waitrose for its butcher’s counter where the assistant can wax lyrical about the best cut for your Sunday’s roast or who love to sniff the racks of freshly baked artisan bread, the soulless “dotcom fulfilment centre” would offer all the aesthetic joy of a Soviet-era supermarket with dingy strip lighting and austere shelving racks. “We are very low-tech,” said branch manager Noreen O’Meara unapologetically. “We are a branch without customers or rather we’ve got customers we can’t see. The face of the brand are the drivers – they’re the only people who see the customers.”
When the five-storey utilitarian building, originally used by sister chain John Lewis as a carpet warehouse, was deemed surplus to requirements Waitrose moved in last year. “We thought we could make it work as our first foray into dotcom,” said Waitrose e-commerce director Robin Phillips. “It’s pretty basic as a layout and we recycled a lot of old kit.”
The round-the-clock operation boasts a mock “shop floor” with aisles presented just as you would find them in a store open to the public. The usual temptations are there, particularly in the seasonal aisle, where boxes of Heston Blumenthal’s new hidden sauce figgy pudding nestle beside rows of panettone, mince pies and stollen. The only tweaks are a nod to the “virtual shopper” with extra rows of toilet paper, bottled water and baby food reflecting that online shoppers use home delivery services to transfer the pain of getting heavy and bulky items home.
There are also more hoodies and bobble hats in the aisles than in your average branch of Waitrose as an army of pickers wraps up warm to swarm through the aisles, picking six orders at a time. “We call ourselves personal shoppers,” said Susie Shackleton, one of the 180 partners working on the (virtual) shopfloor. “Accuracy is the most important thing,” she said. Bags of sugar and flour are placed carefully in cellophane bags “so it looks like we’ve gone the extra mile to care for the customer” – whose name she often recognises although she has never met them.
The shelves are replenished by the night shift and from 4am the operation cranks up again for the day ahead, with the first vans trundling out of the car park well before 6am. “I can’t believe people want their shopping at 6.30am but they do,” said O’Meara. Despite the antisocial hours the main gripes from staff are over which radio station plays over the loudspeakers. Divisions between fans of Capital, Absolute and Magic FM are bitter.
During the heady days of the dotcom boom when Webvan delivery vans were zipping around US cities, internet gurus predicted that by now we’d have temperature controlled lockers bolted to the side of our houses. But fast forward through a cruel decade that saw Webvan consigned to the dustbin of e-commerce history and meaningful profits continue to elude Ocado, the industry is still casting around for the right model.
Store bosses remain divided on the merits of filling orders from large, specialised warehouses – most notably Ocado’s super hi-tech base in Hatfield, north London – or getting staff to pick products from the shelves of their stores as Sainsbury’s does. Tesco and Asda do both, using dark stores to pick up the slack in the densely populated areas such as the south-east.
Despite having more than 3,000 stores, Tesco chief executive, Philip Clarke, has made investing in dotcom-only stores a “clear priority”. The market leader has four dark stores ringing London, in Enfield, Croydon, Aylesford and Greenford, with another three in prospect in Didcot, in Erith, near Dartford, and in Crawley. In a recent interview its internet boss, Ken Towle, said it aimed to build a national network and was scouting other cities, including Birmingham and Manchester, for locations.
Arch-rival Asda is also targeting online shoppers: it has two dark stores in Leeds and Enfield and recently announced plans for a third in Nottingham. Ocado, meanwhile, is ploughing £210m into a second distribution centre in Dordon, Warwickshire which opens next year. Sainsbury’s says it favours picking from store because it takes advantage of its existing network and makes for punctual deliveries, as drivers deliver to customers living nearby.
When the Acton centre opened last October the fleet of Waitrose vans was delivering about 2,000 orders a week but that figure will hit 7,500 by Christmas as its fledgling online service racks up growth of 100% year-on-year in London. For Waitrose the big win is that the price transparency of the internet is encouraging Britons to do more of their shopping with them. “They are doing a full weekly shop [with Waitrose] which they were not necessarily doing before,” said Phillips. “Our multichannel shoppers spend three times as much with us.”
Analysts at IGD, the grocery industry thinktank, estimate the online food and grocery market will almost double in size over the next five years to be worth £11.1bn. Last year internet home shopping accounted for £5.6bn out of the £156.8bn spent on groceries in 2011. “Although online grocery is still in its infancy it is evolving at a blistering pace,” said IGD chief executive Joanne Denney-Finch, pointing to increasing smartphone and tablet use together with 4G mobile technology. “Although online only currently represents 3.4% of the overall UK grocery market, it is the fastest growing sector.”