Sainsbury’s job cuts make business sense, but leave a sour taste

The job cuts have left a sour taste as they have come with a dividend payout and follow a business-rates holiday. Matthew Partridge reports.

Sainsbury's employee
Deli counters will be sacrificed to the fight against Aldi
(Image credit: © Simon Dawson/Bloomberg via Getty Images)

Last week Sainsbury’s added its name to a “long list of firms that have cut jobs since the pandemic began”, says Ben Chapman in The Independent. The supermarket will axe about 3,500 jobs, mostly across its Argos stores, and supermarket meat, fish and deli counters, as it adapts to a “rapid shift towards online shopping”. The company has blamed the pandemic, which it argues has accelerated the decline of bricks-and-mortar shopping, with “almost 40% of Sainsbury’s sales now online, compared to 19% a year ago”.

The job losses are bad news for workers, but sadly necessary to facilitate “much-needed” price cuts, says Lex in the Financial Times. These low prices will help Sainsbury’s deal with the “fiercer” post-lockdown competition from the likes of Aldi. Closing down Argos, which faces intense competition from Amazon – as well as customer complaints that “it is often out of stock” – also frees up working capital and space. This could be used more productively to offer click-and-collect at every Sainsbury’s supermarket and build new fulfilment centres to improve availability and range.

The job cuts may make business sense, but they are “still hard to swallow”, given that we’re still in the middle of a national crisis, says Ben Marlow in The Daily Telegraph. What’s makes them particularly galling is that even Sainsbury’s admits that Argos is the “standout part of the group right now”, helping two million new customers reconnect with the chain during the last nine months. It’s no way to treat a workforce that “heroically kept turning up day-in, day-out during lockdown”, and deserves far more than Sainsbury’s offer of a one-off 10% bonus.

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A sour taste

Cutting Argos and its employees adrift is bad enough, but Sainsbury’s decision to pay £231m in dividends, via a £71m interim dividend and a £160m special payout, leaves “an even sourer taste”, says Alistair Osborne in The Times. This is because the supermarket has benefited from “a taxpayer-funded business-rates holiday” that almost exactly matches the amount of money it is giving to its shareholders. While it’s true that many small investors rely on the dividends for income, much of the money will end up in Qatar, where the Qatar Investment Authority owns over a fifth of the supermarket.

Sainsbury’s isn’t the only supermarket to benefit from taxpayers’ largesse, says Nils Pratley in The Guardian. The entire sector is set to receive £1.5bn in special relief this year. The aim was to help shops that had to close during the first lockdown.

However, supermarkets not only remained open but also “enjoyed a boom” that more than compensated for any Covid-19 costs that they had to incur. Sadly, while Sainsbury’s, Tesco or Morrisons should seriously think about “returning a few quid to the Treasury”, there is “roughly zero” chance of this actually happening.

Dr Matthew Partridge

Matthew graduated from the University of Durham in 2004; he then gained an MSc, followed by a PhD at the London School of Economics.

He has previously written for a wide range of publications, including the Guardian and the Economist, and also helped to run a newsletter on terrorism. He has spent time at Lehman Brothers, Citigroup and the consultancy Lombard Street Research.

Matthew is the author of Superinvestors: Lessons from the greatest investors in history, published by Harriman House, which has been translated into several languages. His second book, Investing Explained: The Accessible Guide to Building an Investment Portfolio, is published by Kogan Page.

As senior writer, he writes the shares and politics & economics pages, as well as weekly Blowing It and Great Frauds in History columns He also writes a fortnightly reviews page and trading tips, as well as regular cover stories and multi-page investment focus features.

Follow Matthew on Twitter: @DrMatthewPartri