Sainsbury’s is the UK’s 2nd largest supermarket chain. It plans to reduce 3,000 positions as part of its cost-cutting efforts in response to rising labor costs, and the challenging economic climate.
These job losses will affect the hot food counters of the retailer and its cafes.
Sainsbury’s is also reducing its senior management positions by one fifth. These measures are intended to reduce costs by PS1 billion.
Simon Roberts, the chief executive of the company, acknowledged that this was a difficult decision. He stressed the importance of efficiency and flexibility in challenging situations.
The statement was made by:
It was difficult to decide where to spend our money and what we needed to change to improve the efficiency and effectiveness of our business.
Retailers in Britain are preparing for job cuts and possible price increases as they anticipate the effects of new government policies.
In the Labour Party’s budget proposal, employer contributions to national insurance would be increased by PS25 billion beginning in April. The national minimum wage will also increase by 6.7%.
The changes will likely put the retailers under pressure to cut their staff and increase prices.
Shifting Consumer Preferences
Sainsbury’s noted that the majority of their loyal customers do not frequent the cafes.
Self-service bread cutting will be offered by the retailer. Popular items are being moved from these counters into regular aisles.
Sainsbury’s is also closing all of its remaining brand cafes. The company cites the popularity of food halls and cafes operated by partners.
Sainsbury’s announced the latest closures nearly three years ago, when it closed 200 cafes in its stores and 34 food counters. The move was part of an overhaul that threatened 2,000 jobs.
Restructuring & Redeployment
Reorganization of the company’s head office is underway to reduce operating costs and streamline its operations.
The senior management positions will be reduced by one fifth as a result of this restructuring.
Sainsbury’s employs more than 148,000 workers and has promised to offer support packages that go beyond the statutory requirements.
Sainsbury Share Price Reaction and Stock Prospects
Sainsbury’s shares fell by 0.5%. Its share price has fallen by 8.5% over the past year. The FTSE 100 gained over 14% in the same time period.
Sainsbury’s (which also owns Argos) announced this month that they had their “biggest Christmas ever” and that sales were up 3.8% during the six-week period ending 4 January. Sales at Argos rose by 1.1%.
The share price fell more than 2 percent after the announcement.
Morgan Stanley cut J Sainsbury’s stock to “underweight” with a target price of 276 pence earlier this week.
Jefferies had previously cut its target price to 300p, from 325p. However, it retained the ‘buy rating’.
Sainsbury reported that day strong retail sales for the third quarter, including an increase of 4.1% in Sainsbury’s Brand Groceries.
The Argos and General merchandise brands have been weak.
Sainsbury’s is expecting retail operating profits to be in line with the consensus, and at between PS1.01 and PS1.06 Billion.
This would be a growth rate of about 7% per annum.
The company had previously stated that “this reflects the continued operational leverage of Sainsbury’s grocery growth, the strong growth of Nectar profits contribution and the delivery on cost-saving targets.”
The Financial Services sub-operating profit is expected to reach around PS30million, exceeding its previous guidance of PS15million to PS25million.
It is expected that the firm will generate free cash flows of 500 million PS.
The post Sainsbury’s Job Cuts: What Investors Should Know About SBRY Stock’s Outlook may be updated as new developments unfold.
