For the third year in a row, Sainsbury’s has reported a fall in first half profits, this time down 10% to £277m. It comes as marketers at the embattled retailer prepare to hand over the £60m advertising account from AMV BBDO to Wieden + Kennedy in January 2017.
So what are the challenges its new agency will have to contend with?
Unsurprisingly, the events of the past eight months have given rise to many of Sainsbury’s most pressing problems. Brexit and today's revelation that Donald Trump is to become president are fuelling yet more uncertainty in the market.
Chief executive Mike Coupe warned on a press call today (9 November) that profits for the second half of its financial year would lower than the first due to of price cuts and inflation.
“To predict how the world will play out over the next six months is really difficult,” he said. “We live in uncertain times. I’m looking in real time at what’s happening [Trump's election] in the stock market and it’s hard to predict. Our job is to make sure we do everything we can to mitigate those costs and limit whatever happens as far as our customers are concerned.”
He stressed that “Marmite is still £2.50 a jar as it has been for years” however, he added that “with the effect of the election result this morning I suspect there will be more currency fluctuations that will come our way. We’ll deal with them as we always have done.”
However, the problem lies in how it communicates this to consumers. For years, the battle among the Big Four and the discounters was on price and it’s only in recent months that Sainsbury’s – and its rivals – have managed to “remove price as a competitive advantage” and begun to differentiate themselves on other factors within their advertising. Retailers’ negotiations with suppliers threaten to once again make price a key battleground in the fight for shopper attention.
“Sainsburys will be under pressure to keep pricing in line with the competition as Brexit takes its toll. They have been bold about promotions and their use, now that same boldness should be employed on basic value,” said Phil Dorrell, partner at Retail Remedy consultants
“Sainsburys needs to be perceived as equitable on price whilst retaining its quality values and integrating Argos into its offer.”
Coupe claimed that, so far, any impacts haven’t reflected in consumer sentiment.
With the merger of Argos completed in the quarter, Coupe revealed that 15 per cent of the company’s sales are now online. Coupe also said that the retailer “is the first billion pound mobile driven business” and that' giving it more insight into the macro trends in customer habits “which are real and now and accelerating".
It’s unsurprising then that expanding its online presence is top of the agenda. The retailer has already hired former News UK exec Andy Day in the newly created the role of chief data officer to help fuel that transformation into a digitally-led business.
What that means for marketing is a greater focus on digital channels. At an update earlier this year, the Sainsbury’s directors outlined their view that “new digital media channels will become increasingly important in the Group’s marketing and advertising strategy," the company has said.
“Recognising the growth in the use of a wide variety of social media platforms like Facebook and Twitter, there is an increasing focus within the Sainsbury’s Group to build engagement with customers through these new platforms/media.”
Coupe revealed he is forging ahead with plans to have 30 digital Argos stores in place by Christmas and it wants to have 250 Argos stores in Sainsbury’s outlets in three years’ time.
But bringing the brands together beyond their proximity within a store is something W+K will have to consider.
The review is still ongoing as to how the two marketing teams combine and Coupe said it will not be until January when AMV BBDO passes the baton that discussions on that front will really take place.
For now, it’s readying its Christmas campaign which will launch on Monday (14 November). Argos’ campaign launched last week and featured a cast of ice-skating monsters.