Sainsbury’s Agility Scores a Huge Deal

On the surface, it doesn’t seem like a grocery founded in 1869 would be at the forefront of retail in 2018. Some of its 19th-century innovations, such as keeping the store very clean and introducing store-branded bacon, are quaint compared to the disruptive technologies and trends now swamping much of retail worldwide. 

Yet experts say Sainsbury’s won over customers with its leadership then and may have won over the biggest possible customer now. This week the UK grocer agreed to take a controlling stake in Asda, the UK grocery chain owned by Walmart. If the deal is completed, Sainsbury’s will become the UK’s largest grocer, a title it lost in the mid-1990s. “They haven’t had a lot of flip-flopping on strategy, and it has not been afraid to overrecruit talent,” says Sarah Lim, head of Korn Ferry’s UK Consumer practice.

Indeed, much of that leadership stems from its talent policy. The company’s executive team is stacked with people who know how to run a business. Sainsbury’s chief financial officer was, until 2016, a CEO himself of another retailer. The head of the Sainsbury’s banking division was the boss of a huge banking society (the UK version of a credit union), the chief information officer held the same position at a giant telecom firm, and the grocer’s head of retail ran operations for a large UK pharmacy chain. All but the head of the bank were brought in by the current CEO, Mike Coupe, who came to the chain in 2004 and worked up Sainsbury’s operating ranks. “The level of raw horsepower is so high for a market in such high turbulence,” Lim says.

That philosophy may apply to the lower ranks, too. Coupe has said that the company has raised its wages for in-store employees by 30% over the last four years to “get the best team and the best capabilities.”

Retail certainly has had its fair share of turbulence. The influx of online shopping and changing consumer demands has bested the strategies and plans of many UK firms. Indeed, half of all UK retailers have changed CEOs at least once in the last four years. Besides those disruptive forces, UK grocers recently have faced serious competition from some old-fashioned brick-and-mortar rivals. It used to be that Asda was the only major low-priced grocery, but two chains from Germany, Aldi and Lidl, have drawn away cost-conscious customers over the past several years.

Sainsbury’s itself had major troubles in the 1990s and early 2000s, when it was eclipsed by Tesco. But after shoring up its own grocer business, the company recognized that the disruption opened up new opportunities for agile companies. In 2016, it bought Home Retail Group, allowing it to start selling wares from that company’s popular catalog and furniture brands within the empty spaces of grocery stores. The Asda acquisition would give a low-cost complementary brand to Sainsbury’s main stores and give it control of more than 30% of the UK’s grocery market, surpassing Tesco. The deal still needs to be approved by the UK’s Competition and Markets Authority, which could force the chains to sell some of their stores before giving them the green light to merge.