Justin King claims one of the chief reasons Sainsbury’s avoided being dragged into the horsemeat scandal last year was its close working relationship with its UK farmer suppliers.
The retailer was the only one of the big four grocers not to be caught up in the scandal and chief executive Mr King sees this as payback for his investment in direct supply links with farmers during the past eight years.
In the aftermath of the crisis the group’s sales jumped while those of Tesco, Asda and Morrisons slumped. However, a year on, Sainsbury’s is seeing its lowest growth for nine years and is warning of slower growth ahead. But Mr King is adamant this does not change the relationship with its farmers.
Connecting the food chain
Mr King says his strategy during the past decade has been to help farmers get closer to the consumer and this helps differentiate the Sainsbury’s supply chain from those of its competitors.
“We are here to support our farmers, and for us, reconnecting with the food chain is the only path to long-term sustainable profit growth,” he says.
One of Sainsbury’s goals is what it calls “sourcing with integrity”, with the company claiming that all fresh chicken, pork and lamb – the latter when in season – comes from the UK, and all fresh beef from the UK and Ireland.
Justin King’s career
- 1983 Trainee at Mars
- 1989 Sales and marketing director, Pepsi Egypt
- 1990 UK managing director of Haagen-Dazs
- 1993 Managing director of Asda’s hypermarkets
- 2000 Executive director of food at Marks & Spencer
- 2004 Chief executive officer at Sainsbury’s
A check of the shelves in a local store shows that imported meat – such as Danish bacon and New Zealand lamb – is still in evidence, but the business appears to have a positive story to tell about buying British.
A survey of its stores by EBLEX in November 2013 showed 87% of the fresh beef and 97% of the fresh lamb on display was British.
The retailer says it was the only major baker that stayed true to a 100% in-store baked British loaf after the monsoon summer of 2012 hit wheat quality.
Its group of about 300 wheat growers, mainly in East Anglia, with grain co-operative Camgrain managed to meet the retailer’s annual bread-making needs of about 75,000t.
Sainsbury’s closer ties with farmers began in 2006 when it signed up 330 milk producers to its dairy development group and Mr King says there has been virtually no change in membership of this group, now producing 40% more milk.
In May 2012, the company introduced a new pricing arrangement based on a margin over production costs, with farmer members observing environmental stewardship and animal husbandry guidelines.
Sainsbury’s negotiates collectively to get cheaper energy prices for more than 2,400 members of its 10 farmer development groups.
“Farmers are not leaving our system and ultimately that must define its success,” says Mr King.
All the signs are that the annual £160bn grocery market is about to get a lot tougher, with the big four grocers being pressured on price by discounters Aldi and Lidl and on quality by Waitrose and Marks & Spencer.
Cautious consumer spending and a rise in the farmgate prices of beef, pork and lamb are pushing some retailers to obtain meat from cheaper sources.
However, Mr King maintains the only path to long-term growth for retailers and farmers alike is to give consumers greater trust in the supply chain.
The group has been checking its meat for 10 years using DNA testing to verify species and radioisotopes to check origin, helping it to avoid the horsemeat scandal.
And while Tesco has three times the profit and nearly twice the UK market share, Sainsbury’s is ready to strike back after a couple of years in the doldrums, and claimed back the number-two market share spot from Asda just before Christmas.
“We are the only one of the big four still growing, and although our growth has slowed, we are still outperforming the market,” he says.
Mr King set out his vision in 2011 to double sales of British food in the group’s stores by 2020.
The supermarket also seems focused on stimulating innovation in farming, announcing a £1m investment in the Agricultural Research and Development Fund in December 2013.
To date cash has been allocated to 13 projects with topics including improving frost protection for leeks, extending the season for British strawberries and reducing the use of anthelmintic wormers in sheep.
Mr King announced last month that he intends to step down in July and will be succeeded by commercial director Mike Coupe, with whom he has worked for 17 of the past 20 years. The two agree that working through dedicated development groups, knowing suppliers and where products come from is key to customer trust. Mr Coupe has worked even more closely with suppliers, giving a clear signal that the link between farmer and retailer will continue.