Sainsbury's ups supermarket stakes with 2,000 job cut strategy

25 October 2017 Consultancy.uk

As part of a £500 million cost-cutting plan, supermarket giant Sainsbury’s has announced that it will give 2,000 staff their marching orders. The savings scheme, which is being advised upon by consultants from McKinsey & Company, was previously expected to sever 1,000 employees, but will now be double that figure, as discounters Lidl and Aldi continue to put pressure on the UK’s Big Four grocers.

The UK’s second-largest supermarket chain has confirmed the shedding of 2,000 employees over the coming year. Following an initial draft proposal in August, which suggested as many as 1,000 staff were in line for the axe, Sainsbury’s have unveiled plans to offload twice as many workers from both stores and back-room operations, in order to bolster profits amid falling sales figures. The grocers, who are a household name in British retail, had previously brought in management consulting firm McKinsey & Company, in order to draw up a headcount reduction plan amid ailing sales figures.

Having inched into 0.1% growth at the end of last year’s Q4 – the first time the store’s figures had increased in over two years – Sainsbury’s sales fell back into decline after it posted a 0.8% decrease in like-for-like sales for the first quarter of 2017. Market analysts have suggested sales were hit by the abolition of the store's "buy one get one free" offers, along with its brand-match guarantee. While ending those sales enabled the reduction of prices overall, a damning report by the competition regulator said multi-buy deals across the industry routinely mislead customers, further impacting on the reputation and sales figures of top stores.

Sainsbury's ups supermarket stakes with 2,000 job cut strategy

The big four supermarket chains of Tesco, Sainsbury’s, ASDA and Morrisons have been embroiled in an increasingly fierce price war as German discounters Aldi and Lidl – who are also investing heavily in the US – expand across the UK, with Aldi becoming the fifth largest chain in the country, while Lidl is projected by Kantar Research to be on course to reach the top seven by the end of 2017. As a result, each of the biggest supermarket chains have announced job cuts in recent years as they seek to compete with the fast-growing discounters.

Sainsbury’s chief competitors, Tesco, rapidly scaled back staffing costs, cutting 1,400 jobs in June. Meanwhile, ASDA, who implemented a project renewal plan – devised with support from consulting firm Bain & Company in 2015 – came in for stringent criticism for their own attempts to avoid falls in profit. In a report published a year after the initial ruling, British supermarket watchdog, the Groceries Code Adjudicator (GCA), condemned the company, finding that ASDA had demanded up-front payments in order for suppliers to retain their place on the shelf, which in some cases were worth a quarter of suppliers’ annual sales value.

Now, in view of this fiercely competitive market, a spokesman confirmed that the store is consulting on measures that would lead to a loss of 1,400 jobs, by removing all in-store human resource and payroll clerk roles. Sainsbury’s currently employ 3,000 back-office staff across the UK, and some 600 further job losses will meanwhile be sourced from a restructuring behind the scenes, in order to consolidate human resource and other support roles. The changes to HR mean tasks like processing payroll will no longer be done in store. The 600 head office staff affected are based in Manchester, Coventry, Edinburgh and London.

The figures come in stark contrast to previous estimates released by the company. In March, the company had revealed it was cutting 400 jobs in a restructuring of its store operations – which also included the changing of working hours for 4,000 more employees and the scrapping of night-shifts – while the figure for redundancies rose to 1,000 by August. The new target of 2,000 lay-offs is just part of a broader strategic plan drawn up by McKinsey with Sainsbury’s, aimed at finding £500 million savings.

“Following a comprehensive review, we are proposing some updates to our HR structures and systems, as well as changes to a number of other support roles, subject to consultation,” Sainsbury’s said, in a release. “This has been a difficult decision and we appreciate that this will be a tough time for those colleagues affected by the changes.”

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Consumer goods start-ups grow interest from venture capital

23 April 2019 Consultancy.uk

Funding the latest consumer goods start-up has been a real money-spinner for venture capitalist firms, with a number of $1 billion companies – or unicorns – having emerged in the space in recent years. New analysis has explored the resulting corporate consumer products activity in the acquisitions space.

Consumer products have enjoyed years of strong growth as new markets opened in developing Asia. China in particular has enjoyed strong growth across a range of consumer good types as the country’s middle class expanded. Private equity firms have been keen to pick up targets in the space as they expand their portfolios to include additional local capacity as well as customers in new markets.

As a result, a study from Bain & Company has found that interest from PE firms in the consumer product space grew sharply in 2018, hitting 6.1% of all invested capital for the year, and making it the third most sought-after category. It is now only behind financial services (23.9%) and advanced manufacturing and services (13.9%).

Corporate venture capital investment

The ‘M&A in Disruption: 2018 in Review’ research found that growth in the segment reflects key changes in the segment as a whole. This is particularly true of insurgent brands, which often leverage local expertise in order to take on international giants in domestic markets.

Short change

The market changes have led to shifts in motivations for consumer goods company investments from PE firms. The number of strategic investments stood at 50% in 2015 compared to deals that increased scope. This has shifted significantly, with 34% of deals focused on strategic outcomes in 2018 compared to 66% for scope. The move towards scope reflects companies seeking out fast-growing products that enable stronger revenue growth streams.

Acceleration in scope-oriented M&A in consumer products

However, there were other motivations for deal activity in the space. Activist investors have put pressure on companies to expand their portfolios in recent years, with the trend expanding from just US targets to Europe.

Further trends

The other key shift in the space regards outbound deal activity. The study found that outbound deal activity has increased significantly in the Americas (up 363%) with total deal volume up only slightly (15%). Key deals included Coca-Cola and Costa, Procter & Gamble and Merck’s consumer health unit, and PepsiCo and SodaStream. In the Asia-Pacific region, outbound deal activity rose 195% while total deal activity fell sharply, by -36%. The EMEA region saw both a sharp decline in outbound deal activity, at -68%, as well as lower overall deal activity, which fell by 32%.

Cross-regional deal making

Deal-making in the current environment is increasingly fraught with uncertainties, as business models change on the back of new technologies, new consumer sentiments and wider market changes from new entrants. As such, acquisitions are increasingly useful as possible hedges on changes in market direction. As such, companies are increasingly pressed to take a future-back position, making sure to incorporate a vision of how the company needs to look in five years into acquisition strategy.

The firm notes that certain acquisitions which enhance a remembrance of a nobler mission, revive a sense of entrepreneurialism and engage directly with consumers may be necessary qualities in acquisitions that transform a company to fit market expectations in the coming decade. While going forward, focus on innovation, partnering with retail winners, reducing cost base and constantly reallocating scare resources will be necessary to protect market share in areas where insurgent local and strategic competitors are active.

Related: Private equity asset growth top priority for 2018.