J Sainsbury plc (LON:SBRY) is to cut 2,000 jobs in an effort to lower costs as the UK’s biggest supermarkets continue to lose market share to discounters Aldi and Lidl.
The supermarket chain will get rid of 1,400 store-based clerks and 600 roles in back office roles across the group as it attempts to slash costs by £500mln.
Shares fell 1.13% to 244.90p in late morning trading.
The changing face of the grocery market
“The UK grocery market is changing at a rapid pace and it’s crucial that we transform the way we operate to meet future challenges and continue to provide customers with best in class service,” said a Sainsbury’s spokesman.
Competition from Aldi and Lidl has sparked a price war between supermarkets, carving into earnings at the Big Four – including Sainsbury, Tesco PLC (LON:TSCO) , Asda and WM Morrison Supermarkets PLC (LON:MRW).
Data from Kantar Worldpanel yesterday showed market share increased for both Lidl and Aldi by 0.6 percentage points in the 12 weeks to October 8, up to 5.2% for Lidl and 6.8% for Aldi.
READ: Morrisons does best of the big four as hard discounters continue to gain share
Tesco is axing 2,300 employees, including head office workers and staff at its Cardiff call centre that is due to close next year, as part of a cost-cutting programme.
Asda is also planning to shed thousands of jobs and cut working hours to save money.
Sainsbury’s is targeting cost savings of £500mln over three years to March 2018 after which is plans to announce further cost cuts. As part of its cost-saving plan, the group said in March that it was axing 400 jobs in store while it would adjust the working hours of another 4,000 workers.
Sainsbury's restructures HR operations
The company shaking up its HR operations to a more centralised model, meaning 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.
“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,” said Sainsbury’s.“This has been a difficult decision and we appreciate that this will be a tough time for those colleagues affected by the changes.”
Chief executive Mike Coupe has not only been cutting costs at the struggling core supermarket business, but has broadened the group with the acquisition of catalogue retailer Argos. The takeover means Sainsbury’s relies less on the competitive grocery market.
ShoreCap welcomes job cuts
Shore Capital said the changes are "symptomatic of the need to structurally adjust operating expenses and also change business culture, in this case at both Sainsbury and Argos we believe, to meet the needs of customers and shareholders for a leaner and more effective business".
The broker left its rating at 'buy' and target price at 248p.
ShoreCap said while some may see Sainsbury's decision as "worrying and disappointing", the reality is that the company was "too bloated, too corporate, too slow and too far detached fro mthe realities of the market place".
"From an investment thesis perspective we are broadly comfortable with the performance of the grocery business, which is currently benefiting from industry-wide inflation albeit we are keeping a watchful eye on relative pricing and store standards; we have seen some variability in the latter recently, particularly in chilled food availability," ShoreCap added.
"Argos synergies, however, should they remain on track or any better are a key positive force to us plus normalised stock valuations for the sector on a PER (price-to-earnings ratio) and EV/EBITDA (enterprise value/earnings before interest, tax, depreciation and amortisation) basis and an attractive dividend yield so leading to our ongoing buy stance on the stock (not to overlook the prospect of progressive deleveraging)."