Sainsbury’s, the UK’s second-largest supermarket chain, is set to cut 3,000 jobs as part of a cost-cutting drive in the face of rising labor costs and a challenging economic environment.
The job cuts will primarily affect the retailer’s hot food counters and cafes, which will be closed.
Sainsbury’s will also reduce its senior management roles by a fifth. The company aims to save £1 billion in costs through these measures.
Chief executive Simon Roberts acknowledged the difficulty of this decision, emphasizing the need for efficiency and adaptability in the face of challenging circumstances.
He stated:
We have had to make tough choices about where we can afford to invest and where we need to do things differently to make our business more efficient and effective.
The retail sector in Britain is bracing for potential job losses and price hikes as major retailers anticipate the impact of upcoming government policies.
The Labour party’s proposed budget includes measures that would increase employer national insurance contributions by £25 billion starting in April and raise the national minimum wage by 6.7%.
These changes are expected to put significant pressure on retailers’ operating costs, potentially forcing them to reduce their workforce and pass on increased expenses to consumers through higher prices.
Shifting Consumer Preferences
The closure of the patisserie, hot food, and pizza counters reflects a shift in consumer behavior, with Sainsbury’s noting that most of its loyal shoppers do not regularly use the cafes.
The retailer plans to move popular items from these counters to regular shopping aisles and offer self-service bread slicing.
Sainsbury’s will also close all 61 of its remaining branded cafes, citing the increasing popularity of cafes and food halls run by specialist partners.
The latest closures come nearly three years after Sainsbury’s closed 200 in-store cafes and 34 hot food counters as part of a shake-up that put 2,000 jobs at risk.
Restructuring and Redeployment
The company is also reorganizing its head office departments to streamline operations and reduce costs.
This restructuring will result in a reduction of senior management roles by a fifth.
Sainsbury’s, which employs 148,000 people, has assured that it will aim to redeploy affected workers where possible and offer a support package that exceeds statutory requirements.
Sainsbury share price reaction and stock prospects
Sainsbury’s share price was down by 0.5%. In the last one year, it has lost 8.5% in its share value. This is when the FTSE 100 has gained more than 14% during the same period.
Sainsbury’s, which also owns Argos and Habitat, announced earlier this month that it enjoyed its “biggest ever Christmas” with sales up by 3.8% in the six weeks to 4 January, while sales at its Argos stores rose 1.1% in that period.
However, it’s share price still fell by more than 2% in the wake of the positive announcement,
Earlier this week, Morgan Stanley cuts J Sainsbury to ’underweight’ with a price target of 276 pence.
Before that, Jefferies cut its price target to 300p from 325p but retained a ’buy’ rating.
Sainsbury had that day reported strong third-quarter retail sales including a 4.1% rise for Sainsbury’s brand groceries.
However, weakness from the Argos brand and general merchandise sales cast a shadow.
Looking ahead, Sainsbury’s expects retail underlying operating profit in line with consensus and the midpoint of its £1.01 billion and £1.06 billion guidance range.
It would represent annual growth of around 7%.
“This reflects continued operating leverage from Sainsbury’s grocery volume growth, strong growth in Nectar profit contribution and delivery of cost saving targets,” the company has earlier said.
It expects total Financial Services underlying operating profit to be around £30 million, above its prior guidance range of £15 million to £25 million.
The firm maintained its free cash flow outlook of at least £500 million.
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