Faced with managing risk across an enormous and highly complex network, J Sainsbury’s head of insurance and risk management, John Keating, takes a straightforward approach. ’We just keep things simple,’ he says
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.”
Key issues facing retailers today
Online shopping: clicks versus bricks?
In 2011, online supermarket sales in the UK were £50.34bn (€59.4bn), or 12% of total UK retail trade, according to online shopping search engine Kelkoo. This represents a rapid growth period from 2008, when online sales were only 8.6% of retail spending. To deal with the challenge, Keating says: “We are growing our online proposition, but continuing to invest in stores … it’s a dynamic balance.”
Reputation: better than the rest
Some supermarkets have been accused of using their size to get away with bullying and unfair practices. Managing brand values is critical to counter this prejudice.
Keating cites the recent protests by farmers over the price they were paid for milk as a good example.
“We were very clear that this issue does not involve us as a result of our approach to fair pricing. This is just one example of upside risk management.”
Resilience: keeping the shelves stocked
Supermarkets are vulnerable to disruption but empty shelves are the last thing any manager wants to see.
In the August 2011 London riots, one of
J Sainsbury’s stores was heavily damaged, but was back trading within 36 hours.
- Keating graduated from University College, Dublin, with a 2:1 in Mechanical Engineering in 1991 and began work at Alstom Power. His first risk management position was as a senior loss prevention consultant (Ireland) at FM Global, from 1995 to 2001, where he was responsible for identifying insurance risks, making recommendations and facilitating solutions.
- Keating went on to work for GE Global Asset Protection Services (now XL GAPS), ACE European Group and Sagicor at Lloyd’s, before being recruited by Sainsbury’s.
- He has two qualifications from the Open University Business School - a Master of Business Administration and Management, General, and a postgraduate certificate in Senior Management, Business Administration and Management - in addition to a postgraduate diploma in risk management from the Institute of Risk Management, London.
- He is a chartered engineer (IMechE & IEI) and winner of the Institute of Risk Management Diploma Student of the Year Award 2006/07.