With 872 hypermarkets, supermarkets and convenience stores across the UK, 150,000 members of staff serving 22 million customers per week with goods and services drawn from a labyrinth of global supply chains, and a property portfolio worth more than £8bn (€10bn, supermarket giant J Sainsbury faces a huge range of risks across an extremely broad spectrum of operations.

But, according to head of insurance and risk management John Keating, the strength of the Sainsbury’s risk team comes from its confident, no-nonsense approach. “One of our values and things that we strive for is to keep things simple,” he says. “We are a retailer and our retail colleagues don’t want to hear risk management jargon when we are trying to get a message across, so we have to keep things free of acronyms if we want to communicate effectively and get people to take the path of successful risk management.”

The insurance and risk management team at Sainsbury’s is part of the corporate services division, which also comprises group legal services, safety, security and shareholder services functions. “We are a team of five in total, responsible for managing risk financing, insurance and claims,” Keating says. “It’s a small team but one that touches every aspect of the business, right through from our retail to logistics operations.”

Working across such a broad range of corporate functions requires a pragmatic approach to operations. “Where we can understand risk, the drivers of risk and where we can predict expected losses, we have an appetite for that type of risk. Our selective risk appetite means we can save the business money because we don’t pay unnecessarily to transfer out risk to third parties,” Keating says.

“Our team has been challenged at times by stakeholders in the businesses who suggest that we are very risk averse, but the reality is we are far from it.” 

Communication is key

Walking the line between maintaining a lean and nimble operation and, where necessary, imposing robust risk management procedures, requires good communication with colleagues to explain how occasionally unpopular decisions are reached. “For example, we don’t allow any temporary storage in close proximity to our premises and service yards,” Keating says. “That can make things difficult sometimes from an operational perspective, but that’s there for a good reason: to protect our own retained risk and bottom line, as well as risk transferred to insurers. Once people understand that, they can work with it. Once colleagues understand that we are protecting our own retained risks then it’s well received.”

In a highly competitive marketplace, where customers in most urban postcodes have substantial choice over where to shop, one of Sainsbury’s biggest risks is exposure to its brand and reputation. “This is fundamental to our business,” Keating says. “Our vision is to be the most trusted retailer where people love to work and shop.”

Protecting the brand is all about understanding exposure at every level. “For example, getting something wrong on food safety is one,” Keating says. “Similarly, we hold a lot of data on customers [through Nectar cards and financial services], and data integrity is up there as a key risk to manage. 

Changing the business

“Our proposition is changing as well: if you walk into a store now, what you see will be very different to what was there five or 10 years ago. We now have a substantial non-food range, including homewares, clothing, white goods and electronics, in addition to food.”
Supply chains for these ranges are long and sophisticated, and produce new risks that need to be managed effectively. “We are importing more and more goods from Asia, as all retailers are,” Keating says. “You only have to look back to the tsunami last year to see that there are some very significant natural disaster risks in that part of the world, which don’t exist to that extent in the UK and Europe.”

Although Sainsbury’s wasn’t directly affected by the tsunami, Keating believes there are lessons to learn from others who were hit hard by disruption to just-in-time supply lines.

Dealing with an increasing number of foreign suppliers also raises the risk of a compromise to product quality and integrity, which in turn could, in an extreme case, be disastrous for the retailer’s brand and reputation. “We’ve got very robust quality assurance systems,”

Risk to the bottom line

Keating says. “All our suppliers have to demonstrate they have requisite quality standards in place, but Asia does present new risk challenges for us.”

But one of the single biggest risks facing Sainsbury’s is something the retailer cannot control: the global economic crisis. Inflation, wage freezes, unemployment, less and less easy credit; all of these factors are influencing the way people shop. If Sainsbury’s can’t change with its customers, that represents a real risk to the brand - and the bottom line.

“Our UK-only footprint means that while the eurozone crisis is definitely on the radar, we are maybe not as immediately affected as others,” Keating says. “However, the economic situation is definitely an issue affecting us at every level: customers have less to spend and are more careful with their spending. They are shopping with smaller baskets, buying less, and more focused on quality and value.

“Risks associated with the economic climate are immediate for all retailers. The sector is extremely competitive and I can’t see the economy improving in the short to medium-term, so we will have to work hard to and grow our position.”