Sainsbury's to buy back outsourced IT

Sainsbury's is to spend £553m buying back a company it set up three years ago as part of its IT transformation programme, with the aim of saving £25m per year.

The retailer announced last week that it will purchase Swan Infrastructure Plc, an intermediary company created in November 2000 when Sainsbury's outsourced its IT systems to Accenture.

Sainsbury's says that buying Swan, along with IT assets including PCs, servers, supply chain packages and point of sale systems, will save £25m per year through better accounting practices.

Accenture will continue servicing Sainsbury's IT operations in its 506 stores and distribution centres, after agreeing a three-year extension to its contract at reduced costs in November last year.

The outsourcer was initially awarded a seven-year contract, as part of the supermarket's IT modernisation programme, taking on around 800 Sainsbury's employees.

No jobs will be affected by the Swan acquisition.

'Our IT services will carry on being serviced by Accenture. We would not have extended the deal last November if we had any concerns about them,' said a spokeswoman for Sainsbury's.

The retailer says the savings will come from removing an existing fee for operational IT services, capital expenditure, debt servicing and repayment.

Sainsbury's says that now is the right time to repurchase the IT assets as the IT overhaul is expected to be complete in the summer. Accenture has deployed new in-store systems including 14,100 tills and 5,800 PCs.

The company says the cost savings, and a direct commercial relationship with Accenture, will provide additional resources to invest in innovation to improve competitive advantage and customer service.

Anthony Miller, research director at analyst Ovum Holway, says the deal is 'financial smoke and mirrors' aimed at simplifying Sainsbury's relationship with Accenture.

'It is unusual because usually part of outsourcing is to get rid of assets. It is not unusual to see a third-party vehicle like Swan set up to take assets off the books, but it is weird to see them transferred back,' he said.