Sainsbury's Supermarkets was established in 1869 by John James and Mary Ann Sainsbury and is Britain's longest standing major food retailing chain. The founders' principles and values guide us as strongly today as they did at the outset&mdashø be the customer's first choice for food shopping by providing high quality, value for money, excellent service and attention to detail.
J Sainsbury plc, widely known in its home nation as Sainsbury's, is one of the largest operators of supermarkets in the United Kingdom. There are about 440 Sainsbury's stores in the United Kingdom, the largest of which stock more than 23,000 products; 40 percent of the items carry the Sainsbury's brand. The Sainsbury's chain was once the largest U.K. food retailer, but in the stiffly competitive 1990s Tesco PLC pulled into the lead while ASDA Group Limited, which was purchased by U.S. giant Wal-Mart Stores, Inc. late in the decade, began threatening to drop Sainsbury's to number three. J Sainsbury also owns nearly 170 supermarkets in the northeastern United States operating under the Shaw's and Star Markets names, while Sainsbury's Bank is a joint venture with the Bank of Scotland that runs in-store banks in the United Kingdom offering basic savings accounts, bonds, personal loans, mortgages, and other consumer-oriented financial products. In late 2000 the company was in the process of disposing of two other holdings: the Homebase chain of nearly 300 do-it-yourself (DIY) home centers located throughout the United Kingdom and an 80 percent stake in Sainsbury's Egypt, a chain of more than 100 supermarkets and neighborhood stores in and around Cairo. The founding Sainsbury family still maintains a 30 percent stake in the company.
Sainsbury's was off to a romantic but practical start in 1869 when two young employees of neighboring London shops met, married, and started a small dairy store in their three-story Drury Lane home. Mary Ann Staples, 19, had grown up in her father's dairy business. John James Sainsbury, 25, had worked for a hardware merchant and grocer. Their shop was a success from the start, as both John and Mary Ann had the business knowledge and capacity for hard work that it took to win the loyalty of the local trade. Their passion for order, cleanliness, and high-quality merchandise made the shop an inviting place, in contrast to the prevalent clutter of many tiny family-owned shops and the insanitary conditions of the street vendors' stalls and carts.
Seven years later the Sainsburys opened a second shop in a newly developed section of town and moved into the upper portion of the building. Within a few years, they had opened several similar branches, planning to have a shop for each of their sons to manage. By the time their six sons were adults, the branches far outnumbered the family size. Yet caution has always been characteristic of Sainsbury expansion; they regularly passed up opportunities to buy groups or chains of stores, preferring to develop each new store independently.
The passion for high quality led them to a turning point in 1882, when they opened a branch in Croydon. They used advanced design and materials that had an elegance not attempted in the other shops and made the store easy to keep clean. The walls, floor, and counter fronts were tiled, the countertops were marble slabs. Customers were seated on bentwood chairs. The store's cleanliness--still a rarity in food shops of that time--and elaborate decor helped attract more prosperous customers; it was an instant success. Several similar shops were added during that decade, while Sainsbury's also developed a less elaborate design for suburban branches opened during those years. In these, business could be done through open windows, as in the common market areas, but the design also attracted customers to come into the store to see a greater variety of food.
In 1890, Sainsbury's moved its headquarters to Blackfriars, where it remained throughout the 20th century. The location provided easy access to wholesale markets and transportation. To obtain the best quality in food, Sainsbury's always kept in close touch with suppliers, and it controlled and distributed stock from a central depot until the 1960s.
Steady Growth in the Early 20th Century
By the beginning of the 20th century sons John Benjamin, George, and Arthur were working in the family business; they and other company employees were trained with equal care and attention to detail. Alfred and Paul went through the same training when they joined the company in 1906 and 1921, respectively. Frank, the third son, took up poultry and pork farming in 1902 and became a major supplier.
During this time, in terms of numbers, rivals seemed to be outdistancing Sainsbury's. Lipton's, the largest, had 500 stores. It took Sainsbury's another 14 years to open its 115th branch. But Sainsbury's continued to place the highest priority on quality, taking the time to weigh each decision, whether it meant researching suppliers for a new product, assessing the reliability of a new supplier, or measuring the business potential of a new site.
The outbreak of World War I slowed expansion plans even further. Rationing and shortages of food, particularly fresh produce, led to the creation of grocery departments selling jams, spices, potted meat, and flour--all bearing Sainsbury's own label. Women began attending the training classes at the Blackfriars headquarters, to replace the male employees who had left for military service. Some worked in the packing plant for Sainsbury-label foods; others served as salespeople in the stores.
Eldest son John Benjamin took much of the initiative in the interwar years, adding new grocery lines while retaining his father's insistence on high quality. By 1922 there were 136 branches, many of them along the new suburban rail lines, and the firm was incorporated as J. Sainsbury Limited. Mary Ann died in 1927 and her husband in 1928, leaving John Benjamin in charge. By this time, so much public attention accompanied branch openings that when Sainsbury's opened a branch in Cambridge, it published an apology in the local newspaper for the impact of a huge opening day crowd. Altogether, 57 new branches were opened between 1919 and 1929, and the gilded glass Sainsbury sign had become a universal symbol of a spacious, orderly interior displaying foods of the finest quality.
There was an apparent break with tradition in 1936 when Sainsbury's bought the Thoroughgood stores, a chain of nine shops in Britain's Midlands. However, the purchase was made with the same care and emphasis on quality that had distinguished all other Sainsbury branches. Stamford House, which had been built in 1912 as an extension of the headquarters at Blackfriars, was extended to provide more space for the centralized supply procurement and distribution that maintained quality control for all branches, which by this time numbered 244. Specially designed lightweight vans had replaced horse-drawn vehicles, further speeding deliveries.
World War II not only slowed Sainsbury's growth, through shortages of food and labor, but also brought the stores into the line of fire. Some branches were totally destroyed; others were extensively damaged. Vehicles carrying mobile shops carried on trade as far as possible in the areas affected by the Blitz. Yet, the evacuation of bomb-damaged areas made it impossible to continue the centralized procurement and distribution operation that had provided efficiency, economy, and standardization of products and services. Along with other wartime restrictions, this caused sales to dwindle to half the prewar level.
John Benjamin's sons Alan and Robert, who had shared the general manager's post since their father's retirement in 1938, became aware of the crucial role of communications during the trying days of this wartime decentralization. The JS Journal, begun in 1946 (and its sister publication, the Employee Report, begun in the late 1970s) exemplified the thorough job of reporting that kept staff members abreast of company developments and business conditions. Both publications have won national awards for excellence.
Long before the last of the wartime restrictions were lifted in 1954, the brothers had begun an aggressive recovery program. Basic operations were recentralized to regain the economies of scale that kept prices down while retaining a substantial profit margin. Alan studied America's burgeoning supermarkets and opened the first self-service Sainsbury's in June 1950 in Croydon, where his grandfather had opened his 'turning point' store nearly 70 years earlier.
Expansion in the 1950s often meant converting existing stores to supermarkets in addition to adding new outlets. In 1955, the 7,500-square-foot Sainsbury's at Lewisham was considered the largest supermarket in Europe. By 1969, Sainsbury supermarkets had an average of 10,000 square feet of space. Supermarkets and hypermarkets in the 1980s would triple that amount.
John Benjamin and Arthur were the only two of the founders' sons whose own sons joined the family business. Arthur's son James, who had joined the company in 1926, was named Commander of the Order of the British Empire for his accomplishments. He created new factory facilities at Sainsbury's headquarters in 1936 and also set up the Haverhill line of meat products.
John Benjamin's sons Alan and Robert, and Alan's son John, were also honored for their work. Alan was made Baron Sainsbury of Drury Lane in 1962, and his son John was made Baron Sainsbury of Preston Candover in 1989. Robert was knighted in 1967. Alan and Robert shared the presidency of Sainsbury's, John was chairman, and Robert's son David was deputy chairman through the 1980s.
With typical caution, Sainsbury's did not actually use the word supermarket in its own communications until the late 1960s, even though it owned almost 100. Nonetheless, the company was at the forefront of new technology. In 1961, for example, Sainsbury's became Britain's first food retailer to computerize its distribution system. In the late 1980s, electronic cash registers at the checkout counter were replaced by scanners. Multibuy, a special feature of the scanning system, automatically applied a discount to multiple purchases of certain designated items. Spaceman, a microcomputer planning system, used on-screen graphics to plot the allocation of merchandise to specific shelf space in the stores. Electric funds transferred at the point of sale (EFTPOS), allowed customers to use debit cards to make purchases.
Diversifying in the 1970s and 1980s
Sainsbury's centenary, 1969, sparked a series of rapid changes. Alan's son, John, became chairman of a new management tier, which reported directly to the board of directors. Departmental directors were given greater responsibility for operating functions to strengthen the centralized control that had always been company policy. With ordering, warehousing, and distribution computerized, strict controls on the speeded-up activity were vital. Sainsbury's became a public company in 1973, two years after making a name change: the period after the initial J was dropped.
Personnel policies at Sainsbury's adhered closely to the principles established at its founding: thorough training, open communication, and continuing training on the job. The company recruited actively at schools and universities, preferring to 'grow its own talent,' but holding employees to high standards of performance. Along with other leading companies and the City University Business School, Sainsbury's conducted a practical management course, the Management M.B.A. Sainsbury's employees participated in profit sharing and share option schemes.
The company's community involvement was also active, taking many forms. John Sainsbury addressed the London Conference on saving the ozone layer early in 1989. The only retailer invited to take part in the conference and the associated exhibition, he presented details of the technological changes made in Sainsbury's aerosol products and plant operations to eliminate chlorofluorocarbons from their operations. Incubation of small start-up businesses, arts sponsorships, and grand-scale charity drives were other ongoing projects.
Forces within the grocery industry compelled Sainsbury's to begin a program of diversification within the retail category. Increased competition from discounters threatened to squeeze profit margins. Creeping market saturation and flat population growth combined to intensify competition as well. Sainsbury's began to make significant additions to its nonfood merchandise for the first time. The company's first petrol station, a convenience for shoppers, was opened in 1974 at a Cambridge store. To gain the economies of direct supplier-to-store deliveries, Sainsbury's formed a joint venture with British Home Stores in 1975, launching a chain of hypermarkets--huge stores combining grocery items and hard goods--called Savacentre; the first Savacentre opened in 1977 in Washington, Tyne and Wear. Sainsbury's retained control of all food-related operations, leaving nonfood lines to its partner until 1989, when Savacentre became a wholly owned subsidiary of Sainsbury's. Meanwhile, Sainsbury's opened a Savacentre hypermarket in Scotland in 1984.
Homebase, a chain of upscale DIY stores, was in the planning stage by 1979. Sainsbury's owned 75 percent of this joint venture, and Grand Bazaar Innovations Bon Marché, Belgium's largest retailer (later known as GIB Group), owned the remaining 25 percent. The partners opened their first Homebase home and garden center in 1981, and had expanded the chain to 76 locations by the mid-1990s.
Sainsbury's looked to overseas markets for growth opportunities as well. In 1983, the company began to amass shares in Shaw's Supermarkets, a New England supermarket chain founded in 1860. Shaw's heritage of carrying high-quality food at the lowest prices meshed well with the ideals of the British firm. Moreover, like Sainsbury's, Shaw's had also been at the forefront of computer technology. By 1987, Sainsbury's had completed the purchase of 100 percent of the 60 stores in Massachusetts, Maine, and New Hampshire, and had plans to open additional stores in that area.
Challenging Times in the Highly Competitive 1990s
The company boosted its holdings in the United States with the 1994 acquisition of a 50 percent voting stake and 16 percent nonvoting equity in Giant Food Inc., a Washington, D.C.-area chain with 159 stores. Sainsbury's increased its nonvoting equity to 20 percent in 1996 and was widely expected to purchase the remaining shares by the end of the decade, but Dutch retailer Royal Ahold N.V. stepped in during 1998 to acquire all of Giant Food.
Sainsbury's also developed a powerful private-label program. By the mid-1990s, its own-label products generated 66 percent of total sales. Three of the company's proprietary products in particular made headlines in the early 1990s. Novon, a laundry detergent introduced in 1992, marked Sainsbury's move into head-to-head competition with national brands. Within just six weeks of Novon's launch, the company's share of the detergents market doubled to 20 percent. In 1994, Sainsbury's changed the formulation and packaging of its own cola beverage, reintroducing it as 'Classic Cola.' The budget-priced cola featured red cans with italicized letters and a stripe; ads promoted the drink's 'Original American Taste.' Within just a few weeks, Classic Cola won 13 percent of Britain's total cola market, while sales of both Coca-Cola and Pepsi at Sainsbury stores plummeted. Not surprisingly, an incensed Coca-Cola demanded that Sainsbury's modify its packaging, claiming that the brands' similarity prevented customers from discerning between them. The supermarket chain acquiesced, but significantly decreased the rival brand's share of shelf space in stores.
Another highly successful, but less confrontational, private-label product also broke new ground for the category. In 1993, the company launched its own periodical, Sainsbury's: The Magazine. Like the publications it competed with, Sainsbury's: The Magazine featured illustrated pieces on fashion, health, and cooking, as well as national brand advertising. Sold only in Sainsbury's supermarkets, the magazine became 'the most successful new magazine venture in Britain in many years,' according to a November 1994 Forbes article.
Under the leadership of Chairman, CEO, and great grandson of the founders David Sainsbury, who took over leadership from his cousin John in 1992, sales tripled from £3 billion in 1985 to £10.6 billion in 1994. During the early 1990s, however, Sainsbury's began losing ground to competitors ASDA, Safeway, and Tesco. Perhaps because of arrogance and complacency or the distractions of its forays into the U.S. market and the DIY sector, Sainsbury's core U.K. supermarket operations lost their edge in a number of areas, including price, customer service, and innovation. Customers began perceiving, rightly or wrongly, Sainsbury's as higher in price than the competition, as offering too many private label products in comparison to name brands, as having insufficient staff to help customers in the aisles, and as having longer checkout lines. Both Tesco and Safeway gained sales through the introduction of loyalty cards, a new marketing practice initially scorned by Sainsbury's and then belatedly embraced through the June 1996 launch of the Reward Card. In 1995 Tesco displaced Sainsbury's from its perch as the top grocery retailer in the United Kingdom. For the fiscal year ending in February 1996 Sainsbury's posted its first profit decline in 22 years.
Among management's first moves aimed at turning the company's fortunes around was a mid-1995 customer service initiative that involved the addition of more than 5,000 staff to man service counters, help customers in the aisles, and pack the groceries. Management changes were also afoot, including the replacement of the marketing director. On the DIY front, meantime, Sainsbury's completed the acquisition of the Texas Homecare chain from Ladbroke Group PLC in March 1995 for £290 million. Texas Homecare held 7.6 percent of the U.K. DIY market. With the acquired units slowly being converted to the Homebase brand, Homebase by the late 1990s became the number two DIY chain in the United Kingdom, trailing only B & Q, which was owned by Kingfisher plc. In August 1996 Sainsbury's gained full control of Homebase when it bought out its partner in the venture, GIB Group, for £66 million.
In a new attempt at innovation, Sainsbury's launched Sainsbury's Bank in February 1997, becoming the first supermarket firm to open a fully licensed retail bank. A joint venture 55 percent owned by Sainsbury and 45 percent by Bank of Scotland, Sainsbury's Bank initially offered telephone banking services in Sainsbury supermarkets, including two credit cards and two savings accounts. By early 1998 the new bank had 700,000 customer accounts with £1.5 billion on deposit and had begun offering personal loans and mortgages. A whole host of additional financial services were introduced over the new few years. Sainsbury's Bank was profitable for the first time in fiscal 2000.
During 1997 Dino Adriano, who had joined Sainsbury in 1964 as a trainee accountant and had previously served as chairman of Homebase, was named group chief executive. Then, in a historic development, David Sainsbury in May 1998 announced his retirement as chairman in order to take on a political appointment as minister for science in Tony Blair's administration. In July 1998 George Bull, who had been serving as chairman of Diageo plc, took over as chairman of Sainsbury, becoming the first nonfamily member to head the company.
Under the new leadership, Sainsbury's continued to struggle and faced a new threat from ASDA following its 1998 acquisition by U.S. retailing giant Wal-Mart Stores. While Tesco had largely replaced Sainsbury's as the U.K. supermarket chain known for quality--and had thereby become the first choice for most middle- and upper-middle-class shoppers--ASDA began emphasizing the everyday-low-price scheme of its new parent, quickly becoming the price leader and gaining both working class and middle class customers in the process. Sainsbury's seemed to be lost between these two rivals and their respective niches. One response to the ASDA insurgency was Sainsbury's 'low price guarantee' launched in October 1999, which promised to match the lowest prices on 1,600 commonly purchased products, including name brand items. Sainsbury's also began adding nonfood items to its supermarkets' shelves, something its competitors had done several years previous. Needing funds to begin a store remodeling campaign, Sainsbury's cut 2,000 jobs from its workforce in 1999.
In contrast to the difficulties of the U.K. supermarket operations, Sainsbury's Shaw's and Homebase units were thriving. Shaw's was bolstered in June 1999 through the acquisition of Star Markets for US$476 million. Star Markets operated in the Greater Boston and Cape Cod areas. A venture into a new foreign territory began in March 1999 when Sainsbury purchased a 25.1 percent stake in Edge SAE, a retail food chain based in Cairo, Egypt. Six months later the stake was increased to 80.1 percent and the company was later renamed Sainsbury's Egypt.
Fiscal 2000 proved to be another difficult year for Sainsbury's. Profits fell 23 percent as the U.K. supermarkets operations suffered a significant profit decline that far outweighed the strong performance at Shaw's and Homebase. This prompted another management shakeup, and in March 2000 Peter Davis took over as chief executive from the retiring Adriano. Davis had most recently been chief executive at Prudential plc, the largest life insurance firm in England, and had served as marketing director at Sainsbury's from 1976 to 1986.
Within months of the appointment of Davis, Sainsbury's appeared to be moving more quickly and decisively to engineer a turnaround. Davis quickened the pace of restructuring in the U.K. supermarkets, aiming to overhaul the entire store network within three years, rather than the eight years outlined previously. A major cost-cutting campaign that aimed at reducing annual operating expenditures by £600 million was initiated. Perhaps most importantly, Davis was attempting to fashion a successful niche for Sainsbury's, aiming to tout the stores' quality and range of products and to not compete with Tesco and ASDA on price. This was a risky strategy but Davis had apparently concluded that competing on price played into his competitors' strengths.
As this restructuring was being launched, Sainsbury also began pulling back from its diversification program, intending to concentrate on turning around the U.K. supermarkets. In mid-2000 Sainsbury began shopping Homebase around, and in December of that year reached an agreement to sell the home improvement chain for £969 million (US$1.4 billion) in a complex three-way transaction. The Homebase chain itself was slated to go to Schroder Ventures, a U.K. private equity firm, while 28 development sites were to be purchased by Kingfisher, owner of the rival B & Q chain. Sainsbury would also reinvest £31 million in Homebase, resulting in a 17.8 percent stake. By retaining a stake, Sainsbury hoped to profit from a potential sale or IPO involving Homebase. Proceeds from the sale of Homebase were earmarked for the supermarket remodeling program and for upgrading Sainsbury's information technology systems as part of the efficiency drive.
Also in December 2000, Sainsbury announced that it had reached an agreement to sell its Egyptian supermarket chain to three Arab companies, who planned to remove the Sainsbury name from the stores. The venture was troubled from the start. Sainsbury had been the first international supermarket chain to enter the Egyptian market and was supported by the Egyptian government, but local supermarket owners were fearful of the new foreign competition and consumers began a boycott believing that Sainsbury would put local shops out of business. In October 2000 an outbreak of violence in the West Bank spread into Egypt when rumors that the Sainsbury chain was connected with Israel circulated, leading to the vandalizing of Sainsbury stores in Cairo. Sainsbury Egypt was also suffering mounting losses.
These disposals would reduce the company to the Sainsbury's chain in the United Kingdom, the increasingly successful Sainsbury's Bank, and Shaw's in the United States, the 12th largest U.S. food retailer with annual revenues of about US$4 billion. There was much speculation that Sainsbury would exit the U.S. market as well, but evidence to the contrary surfaced in November 2000 when the company agreed to purchase 18 Grand Union stores in Vermont and Connecticut. One further development in late 2000 was the announcement that Sainsbury would move its headquarters from the Stamford House complex at Blackfriars to Holborn Place in London. This development too was part of Davis's drive to make the company more efficient as the new site would be more modern and would enable a consolidation of a number of key staff within one location. It was becoming ever clearer that the new management at Sainsbury was quickening the pace of change and laying the foundation for a turnaround that would be quite remarkable.
Principal Subsidiaries: Sainsbury's Supermarkets Ltd.; J Sainsbury Developments Ltd.; Shaw's Supermarkets Inc. (U.S.A.); Sainsbury's Bank plc (55%).
Principal Competitors: ASDA Group Limited; Hannaford Bros. Co.; Safeway plc; The Stop & Shop Companies, Inc.; Tesco PLC.