J Sainsbury : Preliminary Results for the 52 weeks ended 2 March 2024

Preliminary Results for the 52 weeks ended 2 March 2024
Strongest year of grocery performance driving momentum for Next Level Sainsbury's strategy

The strength of our grocery performance over the last year, with record market share gains¹ and volume growth accelerating every quarter, is a clear demonstration of the success of our Food First strategy. Over the last three years this strategy has enabled us to make consistent and balanced choices for customers, colleagues, suppliers and shareholders. Customers continue to respond to the investments we have made in value, innovation, availability and service and are doing more of their grocery shopping with Sainsbury's². Higher grocery volumes are feeding through to better profit leverage. This has driven profit and free cash flow results above the top end of our guidance range despite lower Financial Services profits and softer General Merchandise trading.

We are building on this momentum and the strength of our position in the UK grocery market through our Next Level Sainsbury's strategy, announced in February. We expect to continue to outperform the grocery market and for this volume advantage to drive strong profit leverage in the year ahead, with retail underlying operating profit of between £1,010 million and £1,060 million, growth of between five per cent and ten per cent. Reflecting the strength of our balance sheet and our commitment to deliver enhanced shareholder returns, we announced in February that we will buy back £200 million of shares in 2024/25. We will commence the buyback programme tomorrow.

Financial Highlights

• Retail sales (excl. fuel) up 6.8%. Grocery sales growth of 9.4%, General Merchandise sales up 1.2% (down 0.5% including the impact of the closure of Argos in the Republic of Ireland) and Clothing sales down 6.4%. Fuel sales down 14.3%, reflecting lower input prices. Statutory sales up 3.8%
• Retail underlying operating profit of £966 million, up 4.3%, with volume-driven grocery profit growth and continued strong delivery of cost savings partially offset by weaker General Merchandise profits
• Financial Services underlying operating profit of £29 million versus £46 million last year, reflecting the impact of higher funding costs from increased interest rates not being fully passed on to customers, as previously guided
• Underlying profit before tax of £701 million, up 1.6%
• Statutory profit before tax of £277 million, down 15.3%. Non-underlying items predominantly relate to the restructuring of the Financial Services division
• Retail free cashflow of £639 million, broadly flat year-on-year
• Net debt including leases of £5,554 million, £790 million lower, reflecting strong cash generation and a £372 million net reduction as a result of the Highbury and Dragon property transaction³. Net debt to EBITDA 2.6x
• Proposed final dividend of 9.2 pence, full year dividend of 13.1 pence, in line with last year

2024/25 Outlook

• We are confident of delivering strong profit growth in the year ahead. We expect to continue to grow grocery volumes ahead of the market, driving profit leverage. Combined with continued growth in Nectar profit contribution, a resilient Argos profit performance and continued strong cost saving delivery, we expect this to deliver retail underlying operating profit of between £1,010 million and £1,060 million, growth of between five per cent and ten per cent
• Our strong grocery momentum has continued into the new financial year and while we will face tougher comparatives, we expect to continue to generate volume growth and outperform the market. Against last year's cool and wet Summer, we additionally expect a sales benefit across the business from more normal seasonal weather
• We expect a lower profit contribution from Financial Services this year as we prepare to change the scope of the business. We expect a continued healthy profit contribution from the commission-based products we will retain. However, profits from our core banking products will continue to be impacted by higher funding costs and will additionally be impacted by preparations for phased withdrawal from these areas. Therefore we expect these products to be loss-making and hence a net Financial Services contribution of between break even and £15 million
• We expect to generate Retail free cash flow of at least £500 million

Simon Roberts, Chief Executive of J Sainsbury plc, said:

"We said we'd put food back at the heart of Sainsbury's and that's what we've done. Our food business is firing on all cylinders. We have the best combination of value and quality in the market and that's winning us customers from all our key competitors, driving consistent volume market share growth as more customers choose us for their weekly shop and all their special occasions.

"We've done that by relentlessly investing in price; £780 million over the past three years. We know it's still tough out there for so many households and we're doing all we can to save money right across our business to keep prices low - we have reduced 4,000 products over the last year alone. Nectar Prices has also been a game changer for customers, saving them £12 on a typical £80 shop. And we're not compromising on quality: we've doubled our rate of innovation and Taste the Difference is performing especially well.

"As we embark on our Next Level Sainsbury's strategy, we'll continue to make deliberate, balanced choices to support our customers, colleagues, communities and farmers. I want to say a big thank you to all our colleagues and suppliers for all their hard work in delivering another record year. The business has real momentum and we're excited by our goal of making good food joyful, accessible and affordable for everyone, every day."

Delivering our Strategy

In February, we announced eight commitments that our Next Level Sainsbury's strategy will deliver by March 2027:

Progress against these commitments will be driven by four strategic outcomes: First choice for food, Loyalty everyone loves, More Argos, more often and Save and invest to win.

• First choice for food: Consistent focus on improving our food offer, investing in value, innovation, availability and great service has driven market share gains over the course of the Food First plan. This year we've grown volumes in every quarter and made record market share gains, accelerating through the year⁴.
  • We're the most competitive we have ever been⁵. We have invested £220 million since March 2023 and £780 million over the last three years in keeping prices low and passing on less inflation than the market⁶. Customers' perception of the value we offer is the strongest it's been in six years⁷, which is why we're the only full-choice supermarket gaining volume from limited choice competitors⁸
  • We're also gaining more volume from premium competitors than all other full-choice grocers⁹ by continuing to be bold and ambitious on innovation. In the year we launched nearly 1,200 new products and delivered Taste the Difference sales growth of 12 per cent. With sales of £1.6 billion, Taste the Difference is proportionately the biggest Premium own-label brand of the full-choice grocers¹⁰, in more than one in four baskets during the year and more than one in three over Christmas
  • We led the market in paying our colleagues the new Real Living Wage and invested significantly in other benefits including free food. Our colleague engagement scores have increased nine percentage points¹¹. We believe highly engaged colleagues deliver leading customer service and our overall customer satisfaction is consistently ahead of full-choice competitors¹²
  • We're growing customer numbers for both primary and secondary customers faster than other full-choice grocers¹³. Through the rapid rollout of Nectar Prices this year and by focusing our investment on key centre of the plate items, we're delivering better value on the products customers buy most often and as a result more customers are shopping with us across the full basket and increasingly trusting us for their bigger shops¹⁴
  • In the next phase of our strategy, our ambition is to build on this momentum and deliver more food choice to more customers. Currently only 15 per cent of our grocery stores carry our full food range and so we are investing to bring more of our range to more customers, particularly enhancing choice in fresh food, re-allocating space currently used for general merchandise and clothing to food. We will focus on around 180 of our highest potential stores over the next three years
  • In the final quarter, we opened two new supermarkets, in Talbot Green and Southport, which showcase the 'more for more' investments we will be making: featuring our full food offering, a refreshed and innovative look and feel, optimum proposition balance and excellent sustainability credentials. These stores are performing significantly ahead of expectations
  • Our strong, long-term relationships with suppliers put us in a strong position to play a leading role in creating a resilient and sustainable food system in the UK. We continue to make investments and changes to the way we work with and support our British farmers. This year, for example, we have introduced a cost model with a predictable margin for our potato suppliers
  • We're making deliberate choices about the products and services that sit alongside our core food offer. Lower Tu clothing sales in the year in part reflected a disciplined trading approach, with good stock management protecting profitability in a seasonally weak and promotionally-driven market. However, there were also some disappointing range performances and in the fourth quarter we experienced availability challenges on some core lines, both of which are being addressed in plans for the year ahead
  • Sainsbury's general merchandise sales were broadly unchanged year-on-year, despite poor Summer weather in the second quarter. Looking ahead, general merchandise and clothing inside Sainsbury's stores will become more aligned to customers' grocery missions, ensuring ranges are more relevant and desirable
  • We're building further on the strength of our supermarket locations by rolling out Smart Charge ultra-rapid EV charging. We now have 371 charging bays in 45 stores with plans to extend our network over the year ahead

• Loyalty everyone loves: The role Nectar plays for customers and within our business continues to develop at pace as we further build a world-leading loyalty platform and market-leading retail media capabilities. Nectar has delivered ahead of our plan this year, with the April 2023 launch of Nectar Prices exceeding expectations and the continued growth of our Nectar360 business delivering strong returns for clients on their advertising spend.
  • The vast majority of Sainsbury's customers now regularly shop with Nectar Prices, saving £12 on a typical £80 weekly shop. Nectar sales participation has increased significantly since the launch of Nectar Prices and we now have over 17 million Nectar Digital Collectors. Nectar Prices are now available on around 7,000 products, with customers saving £1.3 billion since the launch
  • Your Nectar Prices, Nectar's personalised offers, are available to online and SmartShop customers and are shopped by more than one million customers each week
  • The strength of our Nectar loyalty programme is fuelling the performance of Nectar360. With a scaled dataset and deep media capabilities, Nectar360 is very well-positioned to continue to grow within the UK retail media market and we expect Nectar360 to deliver an incremental £100 million of profit contribution over the three years to March 2027

• More Argos, more often: We have transformed the Argos operating model in recent years, creating a much more resilient business. Through reducing the standalone store estate, opening more Argos stores inside Sainsbury's and driving greater operating efficiency, we have reduced operating costs by more than 3 per cent of sales since 2019/20. This helped protect profits over the last year, where sales were resilient at a headline level but were skewed towards lower margin consumer electronics and technology categories, with poor weather against tough comparatives impacting sales in higher margin seasonal categories.
  • We forecast a resilient Argos profit performance in the year ahead, with some benefit from cost saving plans and the expectation of more normal seasonal weather. The effect on Argos sales of the closure of Argos in the Republic of Ireland, (2.4)% during H2 2023/24, will reduce to around (1.5)% in Q1 2024/25 and will be fully annualised in Q2
  • We are focused on improving growth through further development of our branded ranges, strengthening our own-label products and growing awareness of our leading service proposition. We also aim to build customer engagement through improving our digital, loyalty and services experiences. We will continue to refine our operating model in stores and deliver better availability and service at a lower cost to serve

• Save and invest to win: We have delivered £1.3 billion of cost savings over the last three years, future-proofing our business with a structurally lower cost base and fuelling investment in our customer proposition. As we start the next phase of our strategy, we are confident of continued momentum and competitive advantage through unique cost savings opportunities and are already significantly underway with a programme of high-returning activities.
  • We're increasingly delivering productivity benefits through end-to-end programmes, making decisions across a full cross functional chain of costs. For example, we are unlocking significant savings and have already improved ambient availability by 170bps year-on-year¹⁵ through our partnership with Blue Yonder, which enables us to use real-time forecasting to optimise the sales, waste and stock equation. We are in the process of rolling this out across our fresh ranges, with the migration due to be completed by Summer 2024
  • We have committed to delivering a further £1 billion of cost savings by March 2027, more than offsetting cost inflation. High returning investments in technology and automation will drive big steps forward in efficiency with more agile, flexible systems bringing greater efficiency to decision making and accelerating the speed at which we can bring improvements to customers

• Plan for Better: We are making good progress on Plan for Better, investing in resilient supply chains and continuing to make progress against targets including plastic packaging and carbon reduction in our own operations.
  • We are accelerating our emission reduction commitments, with our revised targets for decreasing greenhouse gas emissions in our own operations and in our value chain now formally validated by the Science Based Targets Initiative (SBTi). In February, we were the only UK supermarket awarded an A rating for our environmental commitments on climate change for the tenth consecutive year by the Carbon Disclosure Project and we were also recognised as a 2023 Supplier Engagement Leader
  • We reduced relative plastic packaging by 2.8 per cent year-on-year and 12.9 per cent from our baseline. This year we launched our biggest ever plastic packaging removal, moving to cardboard trays across our full mushroom range, which will save over 775 tonnes of plastic per year
  • We raised £36 million for good causes and our stores now support and donate to over 2,500 good causes across the UK. We increased our surplus food donations to communities by 57.8 per cent year-on-year in partnership with Neighbourly, with 13.5 million meals donated over the course of the year

• Financial Services: Underlying profit contribution declined for the year, with lower net interest margins reflecting higher funding costs not being fully passed through to customers, impacting profits on core banking products in particular. This offset more resilient income from commission-based products such as Travel Money and insurance. In January 2024, we announced a phased withdrawal from core banking activities, with any financial services products offered in future to be provided by dedicated financial services partners through a distributed model. We expect to provide an update on this process at our Interim results in November.

Notes
Certain statements made in this announcement are forward-looking statements. Such statements are based on current expectations and are subject to a number of risks and uncertainties that could cause actual events or results to differ materially from any expected future events or results referred to in these forward-looking statements. They appear in a number of places throughout this announcement and include statements regarding our intentions, beliefs or current expectations and those of our officers, directors and employees concerning, amongst other things, our results of operations, financial condition, liquidity, prospects, growth, strategies and the business we operate. Unless otherwise required by applicable law, regulation or accounting standard, we do not undertake any obligation to update or revise any forward-looking statements, whether as a result of new information, future developments or otherwise.

A webcast presentation and live Q&A will be held at 9:30 (BST). This will be available to view on our website at the following link:
https://sainsbury-2023-24-preliminary-results-announcement.open-exchange.net/

A recorded copy of the webcast and Q&A call, alongside slides and a transcript of the presentation will be available at www.about.sainsburys.co.uk/investors/results-reports-and-presentations following the event.

Sainsbury's will issue its 2024/25 First Quarter Trading Statement at 07:00 (BST) on 2 July 2024.

Enquiries

Strategy Review: Next Level Sainsbury's

In February we announced our Next Level Sainsbury's strategy, building on the success of the Food First strategy launched in 2020. Food First put food back at the heart of Sainsbury's, reset our competitive position and created a strong financial platform from which we will grow, invest in further strengthening the business and deliver enhanced returns to shareholders. Next Level Sainsbury's is underpinned by a new purpose: We make good food joyful, accessible and affordable for everyone, every day. The strategy focuses on four key outcomes: First choice for food, Loyalty everyone loves, More Argos, more often and Save and invest to win.

First choice for food
Our work on improving value, innovation and service has driven volume market share gains over the course of our Food First plan. Our performance was particularly strong over the last financial year, with volume growth every quarter and at an accelerating rate of growth. More customers are choosing Sainsbury's and we are growing primary and secondary customers ahead of all full-choice competitors¹³.

Value that sticks
We reset our pricing position over the course of Food First, investing £780 million to improve our value versus all competitors. We are now the most competitive we have ever been⁵ and we are gaining volumes from all key competitors¹⁶. In 2023/24, we invested £220 million in lowering prices on the products customers buy most often and we passed on less inflation than our competitors⁶. We also launched Nectar Prices in April 2023, rapidly rolling out to around 7,000 products over the year. Customers are noticing, with value perception scores improving through the year and now the strongest they have been for six years⁷.

In January we doubled the number of products price matched to Aldi, with over 600 products now included across fresh, grocery and household ranges. We also made it easier for customers to identify lower prices in store by moving all of our entry price point products into a single brand, Stamford Street and by introducing Low Everyday Prices, which has replaced Price Lock and includes over 1,000 products, primarily branded.

Innovate to lead
We are being bold and ambitious on innovation, bringing more new products to customers. We launched over 4,000 products over the course of Food First and grew our Taste the Difference brand from £1.2 billion in 2019/20 to £1.6 billion in 2023/24. We launched nearly 1,200 new products in the year, 40 per cent of those in Taste the Difference, growing the Taste the Difference range by 7 per cent year-on-year. More customers are choosing to treat themselves: sales of our Premium tier grew 12 per cent year-on-year and significantly ahead of the market¹⁷. Ready-prepared meals, Bakery, Food to Go and FreeFrom all performed particularly well.

Customer favourites across the year included our Taste the Difference Mushroom, Mascarpone and Truffle Pizza, our Signature Beef Burger and at Christmas, our Buttermilk Turkey Crown with maple cured bacon and buttery sage and onion stuffing.

We consistently outperformed the market at every seasonal event¹⁸, finishing Q4 with a strong Valentine's Day, with standout sales across flowers, confectionery and our Taste the Difference meal deal, which was the best value in the market. We are well set up to continue our momentum in events and began 2024/25 with a record-breaking Easter week, performing ahead of the market¹⁸ with our biggest ever Easter grocery sales.

A more resilient food system
Our strong, long-term relationships with suppliers put us in a strong position to play a leading role in creating a resilient and sustainable food system in the UK. We continue to make investments and changes to the way we work with and support British farmers. This year, for example, we have introduced a cost model with a predictable margin for our potato suppliers, working closely together to protect supply. On a global scale, working in collaboration with longstanding partner Fairtrade, we are contributing towards paying banana workers a living wage three years ahead of the industry commitment.

Alongside this, we are increasingly moving to more long-term partnerships with key suppliers to enable them to invest for the future with confidence. For example, in March 2023 we began a new long-term partnership with Moy Park which has provided our chickens with 20 per cent more space than industry standard along with environmental enrichments such as perches and play bales. Results indicate that our birds are happier and more comfortable. We have made this change while keeping our price position as sharp as ever and our chicken market share has grown since launch¹⁹.

We were the first large supermarket to launch a dedicated 'Best of British' page on our Groceries Online website, better championing British grown and produced products. The page highlights over 450 products which are 100 per cent British sourced, including popular fruit, vegetable, meat, dairy, eggs and chilled essentials.

More food choice for more customers
Our strengths in fresh food, range and innovation are at the heart of Sainsbury's heritage and brand promise, Good Food For All Of Us. However, we do not currently offer our full range to enough customers in enough locations, with just 15 per cent of our supermarkets offering our full range. We are investing to bring more of our range to more customers, particularly enhancing choice in fresh food, focusing on around 180 of these highest-potential stores over the next three years. While carrying out these changes we are also updating the look and feel of many stores and selectively introducing innovations which we have trialled in a number of stores in recent months, bringing customer and efficiency benefits.

We opened two new supermarkets in Q4, Talbot Green and Southport, both centred around a food hall designed to help customers rediscover the joy of food. Offering our full range, both stores also feature new digital signage and displays designed to help customers feel more inspired and make the stores easier to navigate. To support our Plan for Better targets, each store has a unified refrigeration, ventilation and heating system that removes the need for fossil fuel gas heating and runs on natural CO2 refrigeration, with 100 per cent LED lighting throughout. These new supermarkets are performing significantly ahead of expectations.

Products and services that complement the Food offer
We are tightening our general merchandise and clothing ranges, aligning them more closely to customers' shopping missions. In combination with a more profitable food offer where it's needed, this will generate significantly better sales and profit returns on store space.

Tu clothing continued to maintain a disciplined trading approach in the year. Versus a 2019/20 base, this trading approach has created a more profitable sales mix over the last three years, with higher full price sales, significantly lower markdowns, stronger gross margins, higher average selling price and lower stock. This helped protect profitability over 2023/24 in a seasonally weak and promotionally-driven market. However, our performance during the year and particularly the fourth quarter, when we were further impacted by stock shortages, was below expectations and we have taken action to improve ranges in the year ahead.

We continue to expand our Habitat range, with our new home fragrance collection performing ahead of expectations. Looking ahead, Habitat will celebrate its 60th birthday in May with an innovative 60 Years of Design collection in partnership with designers including Sebastian Conran.

In January, we launched our Smart Charge ultra-rapid EV charging network, now in 45 supermarket locations with 371 charging bays. Smart Charge provides a quick and reliable offer using 100 per cent renewable energy. We will build further on the strength of our supermarket locations and customer traffic, investing in Smart Charge to increase our network of reliable ultra-rapid charging bays.

Engaged colleagues delivering leading customer service
In January we announced that we would be investing £200 million to increase colleague pay in line with the new Real Living Wage, increasing pay to £12 per hour nationally and £13.15 for colleagues in London; leading the market and taking our investment in colleague pay over three years to more than £500 million. Over the course of Food First, we have improved our colleague engagement scores by nine percentage points¹¹. We believe more engaged colleagues deliver better service, and our overall customer satisfaction scores were ahead of full-choice competitors throughout the year, leading in areas including speed and ease of checkout and friendliness and availability of colleagues²⁰.

Convenience sales grew ten per cent, with overall customer satisfaction improving by five percentage points²¹. We grew Groceries Online ahead of the market in the second half²², supporting our strong grocery sales momentum. Increased customer numbers are driving higher sales volumes and we have improved customer satisfaction and retention through better availability and the launch of Your Nectar Prices on Groceries Online²³. We have expanded our On Demand business to 1,157 stores, resulting in 69 per cent sales growth year-on-year.

We are always looking for ways we can improve customer experience while saving money to invest back into our product offer. We have made significant progress in our programme of automating some simple customer services functions to provide a more seamless customer experience and free up colleague time to provide customers with better service.

Plan for Better
Plan for Better is at the heart of how we will deliver our new purpose, to make good food joyful, accessible and affordable for everyone, every day. We are committed to playing a leading role in offering affordable high-quality food that supports healthy and sustainable diets and helps customers reduce their impact on the planet. We know how important it is for our customers, colleagues, communities and shareholders that we deliver on our Plan for Better goals. We are making good progress on our plan, investing in resilient supply chains and continue to make progress towards our targets.

We have a long history of providing good food and leading change to help our customers eat healthier, more sustainable diets. Our Healthy and Better for you sales tonnage as a proportion of total sales is at 80.9 per cent and we recognise there is more to do as we work towards our target of 85 per cent by 2025. Our progress is reflected in our market outperformance of Produce volume sales²⁴, the fact that 87 per cent of our own-brand sales are Healthy and Better for you choices and that our primary customers rate us ahead of our competitors for making it easy for them to choose food that is healthy. We have also designed our value offering to complement this work and this year at least 75 per cent of our Aldi Price Match campaign featured Healthy or Better for you products like fresh produce, wholewheat pasta, salmon and alternative milk products.

Plastic reduction initiatives launched in the year will save nearly 1,800 tonnes of plastic per year and we reduced relative plastic packaging by 2.8 per cent year-on-year and 12.9 per cent from our baseline. We became the first UK retailer to switch from plastic to paper packaging across our entire own-brand toilet paper and kitchen towel ranges, saving 485 tonnes. Other plastic saving initiatives included leading the market in changing our range of babywear to cardboard hangers and reducing plastic in meat packaging ranges.

In the last year, we raised £36 million for good causes and redistributed 57.8 per cent more surplus food to communities through our partnership with Neighbourly. Over the course of this partnership, we have donated over 23 million meals to communities. Our stores now support and donate to over 2,500 good causes across the UK. We also moved from use-by dates to best-before dates across our own-brand milk range, helping reduce food waste and impacting 730 million pints of milk sold by Sainsbury's every year²⁵.

We have restated the 2022/23 result for food waste to anaerobic digestion reported in the 2022/23 Annual Report from 23,443 tonnes to 30,399 tonnes due to an identified reporting error. The 2019/20 baseline is restated from 31,615 tonnes to 34,609 tonnes. This means that in 2022/23 we reduced absolute food waste by 12.2 per cent rather than the 25.8 per cent reported versus our 2019/20 baseline. This year we have reduced food waste to anaerobic digestion by 12.5 per cent absolute and 13.9 per cent relative to total tonnes handled versus our 2019/20 baseline. We are focused on accelerating our progress and have put in place a number of new measures including a partnership with Olio to redistribute 'use by' foods from all of our stores and are extending trials on new ways to repurpose food waste for animal feed.

We are building the resilience of our business and accelerating our emission reduction commitments. In February, our revised commitments for lowering greenhouse gas emissions in our own operations and in our value chain were formally validated by the Science Based Targets initiative. In the same month, the Carbon Disclosure project awarded us an A rating for our environmental commitments on climate change for the tenth consecutive year - the only UK supermarket to be recognised at this level.

Loyalty everyone loves
We are continuing to build a world-leading Nectar loyalty platform, offering personalised, rewarding and integrated loyalty and market-leading retail media capabilities. This platform has been a key component in transforming our value offering and value perception. It has delivered ahead of our plan and is playing an ever-greater role for customers and within our business, with over 17 million digital subscribers.

We launched Nectar Prices in April last year and rapidly rolled it out across our ranges. It is now available on around 7,000 products and is saving customers an average of £12 on a typical £80 shop. The customer response to Nectar Prices has exceeded our expectations, strengthening value perception and driving Nectar participation levels, with more than five million new Nectar Digital Collectors since launch. In October, we also introduced Your Nectar Prices on Sainsburys.co.uk and our grocery app, with plans on track to roll this out more widely. Your Nectar Prices is powered by Nectar's personalised offers which are world-leading in their scale, generating over 280 million different personalised offers each week.

Nectar360 is well positioned within the fast-growing UK retail media market, with a scaled dataset and deep media capabilities. Nectar360 serves over 870 brands directly and has built partnerships with the 10 key agency groups. Over the last year we signed two new partners, allowing advertisers to better target campaigns and launching a new supply chain data sharing and insight platform for our suppliers. We also announced the expansion of our connected digital screen network to over 800 screens. To continue to build stronger digital engagement and deliver even more value to Nectar customers, we are investing in high return growth by expanding our team and unifying our capabilities across instore, onsite and offsite. As we continue to build our coalition of strong partners, we are also investing further in the integration of Nectar across all our digital platforms and into payment solutions.

Our Next Level Sainsbury's strategy will continue to build a world-leading loyalty platform - one that's even more personalised, joyful, rewarding and transparent - for everyone. We expect to generate an incremental £100 million of Nectar360 profit contribution over the three years to March 2027.

More Argos, more often
We are focused on transforming Argos around the three things that have always made it brilliant - curated range, famously convenient experience and great value - so that more customers buy more complete baskets more often.

Over the last three years we have significantly improved Argos's profitability by transforming our store operating model, reducing the standalone store estate and opening more Argos stores inside Sainsbury's. This has reduced the fixed cost base while expanding the number of points where customers can conveniently collect products. Argos sales and gross profit last year were impacted by poor seasonal weather against tough comparatives in challenging market conditions, but lower fixed costs helped reduce the impact of weaker sales on Argos profitability.

Famous for convenience
Customers love and recognise Argos for the convenience and consistently great value we provide and this has remained at the heart of the Argos proposition over the last year. Half of UK households shop at Argos every year²⁶ and we have the fourth most visited retail website in the UK²⁷. More than 70 per cent of sales start online, 70 per cent of sales are collected in store and nearly 70 per cent of online Click and Collect orders are available for immediate collection. Over the next three years our focus will be on building customer awareness of our great service and convenience, with an ambition to drive greater frequency of customers shopping with Argos.

Inspiring choice, always great value
Our aim is to inspire customers to shop bigger baskets with Argos more often by continuing to improve our ranges and enhance customer experience. Gaming remains a strong contributor to growth, powered by strong Black Friday deals, consistent availability and continued demand for hardware and accessories. Mobile phone sales have also been strong, particularly iPhones, where we have had better stock allocations and as a result have grown market share. Premium product sales continue to perform well.

Argos's key brand health metrics significantly increased versus last year²⁸ and customer satisfaction improved over the course of the year in appealing promotions, value for money, quality and variety of items²⁹.

Supercharged digital capabilities
We are supercharging Argos's digital capabilities by further developing the website, app and customer relationship management capabilities, with the aim of driving traffic, basket spend and conversion. We continue to improve the digital customer journey by testing new promotional and personalisation mechanics and enhancing search and browsing experiences - making checkout easier and faster. We recently relaunched our delivery checkout to provide a better customer experience and a more stable platform.

Accessible and relevant credit, care and services
Having the right range of accessible and relevant credit solutions is important to help our customers buy what they want, when they want it. We announced in January the completion of a strategic review of our Financial Services division which will over time result in a phased withdrawal from our core banking business. Whilst financial services will continue to be an important part of the Argos proposition, we expect to move to third party provision of Argos financial services products, improving the range and quality of payment solutions we can offer customers and increasing penetration, currently 21 per cent of sales.

Next level service, efficiency and stock flow
We have significantly transformed Argos to be a digital first business and have integrated Nectar. At the same time, we have moved from standalone stores towards a store-in-store model, increased the number of our collection points and continued to build a market-leading fulfilment network, as well as completing our withdrawal from the Republic of Ireland.

We have made significant changes to how and where we move and hold stock, driving efficiency and improving availability by making sure we have the right stock closer to customers when they need it. The next phase of our store operating model refinement is moving to a clustering model, which will replace a one-size-fits-all approach. This approach will unlock efficiencies and reduce operational complexity. As a result we will have better tailored ranges, availability and service, delivering cost-to-serve reductions alongside improved customer satisfaction. An example of this is our Croydon store, where we've already moved from three floors to one, resulting in faster service and improved customer satisfaction.

Save and invest to win
We have delivered £1.3 billion in savings over the last three years - double the rate of savings during Food First compared to prior years - which has been central to the delivery of our strategy. This has created the fuel to invest in what matters for our customers and has reset our value position. In the next three years, we will create a further £1 billion in savings, more than offsetting cost inflation and taking another big leap forward in efficiency, productivity and customer focus.

Our investments in technology and automation are driving big steps forward. More agile, flexible systems are bringing greater efficiency to decision making and accelerating the speed at which we can improve customer experience. For example, we are unlocking significant savings through accurate real-time grocery forecasting that optimises the sales, waste and stock equation. We have already migrated all of our ambient grocery products to machine learning forecasting, resulting in availability gains of 170bps year-on-year¹⁵ - the equivalent of 150 more products available in each of our supermarkets, driving up basket size. We are underway with rolling this out across our Fresh ranges, with the migration due to be completed by Summer 2024.

We are also simplifying our technology processes using cloud technology. This is helping with allocation and replenishment processes, enhancing customer personalisation and rewards and supporting the safety and stability of our ongoing operations. By automating some of the processes within our contact centre, we are delivering a more seamless customer experience and faster resolution times, while saving colleagues' time.

We are making bold decisions on business structure and propositions. We are simplifying our Store Support Centre structure and looking at where we can work more effectively with third party partners. We are also making good progress on the programme we began in 2022 to transform our eat-in, takeaway and home delivery food and drink offer, with fewer Sainsbury's cafés and more third-party outlets.

A smaller proportion of cost savings will be driven by structural changes in the future, but we continue to transform our food service offerings to reduce cost and complexity across our business while enhancing our customer offer. For example, leading the market on freshly baked goods is an important part of our ambition to be First choice for food. We are well underway with a programme to move many stores to a more efficient way of freshly baking products in-store, improving range and quality but also unlocking significant savings.

Plan for Better is fully integrated into our Save and invest to win initiatives. We are rolling out the latest integrated refrigeration and heating technology, delivering both a saving on energy and helping reduce our carbon footprint. The Longhill Burn Wind Farm was completed in August and the wind turbines are the largest and most powerful onshore in the UK. When all the turbines are operating at maximum capacity together they can provide enough electricity to supply up to 33 per cent of our total electricity needs. We have also started to roll out double decker trailers in our fleet, which will reduce the number of vehicles on the road, thereby reducing our carbon footprint, while maintaining the same levels of stock movement.

¹Nielsen Panel volume market share 2017/18 to 2023/24. Total FMCG (excluding Kiosk and Tobacco), Market Universe: Total Outlets
²Nielsen Panel, total FMCG (exc. Kiosk and Tobacco). Primary and Secondary Volume Share of wallet %pt YoY change, 52 weeks to 2 March 2024
³Please refer to note 2.4 in the Notes to the consolidated financial statements
⁴Nielsen Panel data. Total FMCG excl. Kiosk and Tobacco, volume market share change YoY
⁵Value Reality, 2023/24; Acuity, internal modelling. Data available from 2016.
⁶Nielsen Panel data. Total FMCG excl. Kiosk and Tobacco. Top 100 SKUS Average 4 weekly Trended ASP (Average Selling Price) vs Total Market - 52 weeks to 2 March 2024
⁷YouGov Brand Index - Supermarket Value for Money Perception metric %
⁸Nielsen Panel data. Total FMCG excl. Kiosk and Tobacco. Net volume switching to/from Aldi and Lidl, 52 weeks to 2 March 2024
⁹Nielsen Panel data. Total FMCG excl. Kiosk and Tobacco. Net volume switching to/from M&S and Waitrose, 52 weeks to 2 March 2024
¹⁰Nielsen Panel data. Total FMCG excl. Kiosk and Tobacco, Nielsen Panel data. Contribution of Premium Own Label to Total Sales
¹¹eSAT scores March 2024 vs April 2021
¹²CSAT Supermarket Competitor Benchmark data - Overall Supermarket satisfaction score
¹³Nielsen Panel, total FMCG (exc. Kiosk and Tobacco). Customer numbers YoY growth, 52 weeks to 2 March 2024
¹⁴Nielsen Panel, total FMCG (exc. Kiosk and Tobacco), Total Shopper Mission customer numbers, YoY %pt change, 52 weeks to 2 March 2024
¹⁵Q3 23/24 YoY improvement in availability
¹⁶Nielsen Panel data. Total FMCG excl. Kiosk and Tobacco. Sainsbury's to/ from net volume switching, 52 weeks to 2 March 2024
¹⁷Nielsen Panel Premium Own Label Volume Growth YoY - Total FMCG excl. Kiosk and Tobacco. 52 weeks to 2 March 2024
¹⁸Nielsen EPOS data. JS volume growth YoY% difference to Total Market growth YoY% for key events week growth versus last year events week
¹⁹Nielsen Panel data, volume market share % growth YoY, FY23/24 vs FY22/23, Chicken category (raw chicken)
²⁰CSAT Supermarket Competitor Benchmarking data - FY23/24 scores
²¹Lettuce Know Convenience customer satisfaction scores, FY23/24 vs FY22/23. Overall Satisfaction measure
²²Nielsen, Sainsbury's Online market share, 24 weeks to 2 March 2024
²³Lettuce Know Groceries Online customer satisfaction scores, FY23/24 vs FY22/23. Overall Satisfaction measure
²⁴Nielsen panel data, Produce category, volume growth YoY, 52w to 2nd March 2024
²⁵Includes all fresh and organic milk sold across England, Scotland, and Wales
²⁶Kantar Worldpanel. UK households vs ONS Total UK households 2022
²⁷SimilarWeb traffic share, 52 weeks to 2 March 2024
²⁸YouGov - General Retail Brand Health metrics
²⁹Argos E2E CSAT Survey