Strategy switch

Sainsbury’s plans ‘phased withdrawal’ from banking

Sainsbury's Bank
Sainsbury’s offices at Edinburgh Park (pic: Terry Murden)

Sainsbury’s has announced a “phased withdrawal” from its Edinburgh-based banking operations to focus on its core supermarket operations.

The company said that, following a strategic review of its financial services, these products will now be offered through dedicated providers through a distributed model. It already does this with its insurance products.

Ahead of its 7 February strategy update, the company said: “Over time this will result in a phased withdrawal from our core banking business. There will be no immediate changes to the products or services that we provide to customers as a result of this decision.”

Chief executive Simon Roberts said: “We have been clear since we launched our Food First strategy in 2020 that we would concentrate our efforts on our core retail businesses and today’s announcement reflects that strategic focus..

“It’s business as usual for now at Sainsbury’s Bank and there will be no immediate changes to products and services as a result of today’s announcement. We will of course communicate directly to customers well in advance of any changes to their products and services.”

Jim Brown will retire as chief executive of Sainsbury’s Bank and will be succeeded by Robert Mulhall, the former head of Allied Irish Bank’s UK division, at the end of March.

Originally a 50/50 joint venture with Bank of Scotland, former CEO Justin King doubled down on the venture in 2014, paying £248 million to buy out BoS’s share.

From contributing a healthy return to the group, it is now seen as a distraction and its value has diminished. Half-year operating profits from financial services including the bank fell to £13m from £19m in the corresponding previous period..

The announcement follows the group’s £464m sale last summer of its mortgage book to the Co-operative Bank and is part of a steady down-sizing in supermarket banking.

Tesco is rumoured to be entertaining bidders for its banking arm, also based at Edinburgh Park, as it too undergoes a strategic rethink.

Tesco Bank
There is speculation that Tesco will sell its banking business (pic: Terry Murden)

Russ Mould, investment director at AJ Bell, said: “Over the past two decades, supermarkets saw an opportunity to make more money off their customers than by simply selling food and drink.

“During this time we’ve seen various ventures in mobile phones, broadband, energy, garden centres, coffee shops, restaurants, bakeries and more alongside the provision of core financial services.

“A lot of these ventures have since been sold on to third parties as the supermarkets go back to their bread and butter, and it feels as if we’re now in a new wave of this movement given actions by Sainsbury’s and potentially Tesco.

“The next question investors will ask is whether Sainsbury’s will look to sell Argos given disappointing general merchandise sales of late and this also being non-core to its food-first strategic focus.

“The banking announcement refers to a clear focus ‘on our retail businesses’ rather than simply saying groceries, and so one could deduce that Argos is safe for now. But there will almost certainly be serious questions about its future if it continues to be a drag on the group.”

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