Main Menu

Battle with discounters continues

Price war takes its toll on Sainsbury’s as sales take a tumble

sainsburysSainsbury’s saw sales down in the last quarter as the big supermarket chains continued to face severe price competition.

Customers bought more products among the 1,100 offered at a lower price last November, but this pushed down overall revenue and squeezed margins.

Total sales excluding fuel fell 0.3% and by 2.7% including fuel in the ten weeks to 14 March. Like for like sales were down by 1.9% and 3.9% respectively.

Mike Coupe, Chief Executive, said, “The trading environment remains challenging and the decisions we have taken to improve our competitiveness are reflected in our quarterly performance.”

He said the company had seen prices fall particularly in popular ranges such as diary, ready meals, fish and poultry.

There was a 3% rise in sales on the 1,100 cut-price products.

The general merchandise and clothing businesses performed strongly, up more than 6% on last year. Growth in the convenience business remains strong at 14% and in the quarter the company opened 23 convenience stores.

Orders of groceries online increased by 14%, with a record week of 245,000 orders. By the end of 2015 customers will be able to click and collect their online grocery orders from 100 sites.

Edinburgh-based Sainsbury’s Bank grew sales of its loans by 21% an announced the opening of Argos digital stores in ten supermarkets.

Mr Coupe said: “We expect the market to remain challenging for the foreseeable future. Food deflation is likely to persist for the rest of this calendar year, and competitive pressures on price will continue. However, we believe that the great value and quality of our products, combined with a strong focus on developing our multi-channel offer, will enable us to outperform our supermarket peers.”

Phil Dorrell, director of the retail consultancy Retail Remedy, comments:

“As silver linings go, it’s not a bad one. The value of sales is down, but volume is up as Sainsbury’s aggressive discounting has lured more people through the door.

“Those price cuts – on more than 1,100 products – are hurting the bottom line in the short term, but in the long term might just stop the rot.

“The venerable British brand will take some solace too from the fact the sector as a whole has taken a hit from price deflation, but will be watching anxiously as its main rival, the recovering Tesco, cuts prices and markets itself ever more boldly.

“Sainsbury’s has invested well in profitable, smaller format stores and this is helping the overall numbers. But it takes a lot of them to make up for its underperforming large stores, where investment is low and some are looking tired.

“The brand’s greatest strength is food – especially fresh food – where its own label offering is the best of the bunch. Its weakness is its clothing – all too often good products are displayed poorly in its stores. Done right, supermarket clothes can be extremely profitable, and while Asda and Tesco are making hay in this area, for Sainsbury’s it’s still a missed opportunity.

“The Sainsbury’s marketing department should focus less on winning awards and concentrate on giving customers a reason to visit their stores every week. Overthought and fussy campaigns like their ‘Christmas in the trenches’ ad might garner column inches and clicks, but in the current price conscious market are unlikely to convert into enough sales to justify the expense.

“Mike Coupe has found his feet, and Sainsbury’s is well run and thoughtful, if a little passive in its response to longer term issues. It needs to tweak its marketing campaigns to drive greater footfall, improve its larger stores and its clothing displays – and keep capitalising on its fresh food and own label trump cards.”

John Ibbotson, director of the retail consultants, Retail Vision, comments:

“Sainsbury’s did marginally better than expected in the fourth quarter but it still has one hell of a fight on its hands. As with the rest of the Big Four, it’s do-or-die time.

 “What’s very clear is that Mike Coupe’s Strategic Review needs to be implemented faster. There has to be greater urgency at Sainsbury’s or it will see bigger sales falls in the future. This is not one that will play itself out over time.

 “Transactions may be up but any growth on this side is negated by prices that are falling across the board.

 “With Tesco slowly dusting itself off under Dave Lewis, and its market share almost twice that of Sainsbury’s, it holds all the cards in the price game, with bigger margins to give back to its customers.

 “Without better prices, Sainsbury’s is not going to catch the resurgent Tesco.

 “In today’s supermarket world, price will always trump quality, range and store standards. Brand is no longer something brands can rely on to bail them out.

 “The UK grocery sector has been blown apart by the arrival of the discounters, new shopping patterns, brutal price-cutting and broader price deflation.

 “In current market conditions, there is no easy way back for Sainsbury’s to year-on-year sales growth.”

Share The News Tweet about this on TwitterShare on FacebookShare on Google+Email this to someoneShare on LinkedIn





Leave a Reply

Your email address will not be published. Required fields are marked as *

*