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Gok and banking help Sainsbury’s offset falling food sales

Gok Wan Sainsbury'sFashion guru Gok Wan and financial services helped offset falling food sales at Sainsbury’s which is switching into more non-food lines.

Chief executive Mike Coupe said the sector remains highly competitive, driven by  a combination of deflation and discounting.

More food is being sold but at lower prices and the situation is unlikely to change in the short term as its competitors face similar pressures. Morrisons this week unveiled further price cuts.

Total sales at Sainsbury’s for the 12 weeks to 6 June fell 0.6% (excluding fuel) and 2.3% (including fuel. Like for like sales were down 2.1% (excluding fuel) and 3.7 % (including fuel).

These trends have led Sainsbury’s to grow other product lines such as clothing and financial services. Edinburgh -based Sainsbury’s Bank opened its 182nd travel money bureau and travel money grew strongly at over 40%. The company was named ‘Best Card Provider (standard rate)’ at the Moneyfacts Awards for the third successive year.

Clothing delivered sales growth of more than 5% and the company launched its 17th Gok Wan collection which saw its second-best launch week. The clothing online offer remains popular with our customers and will be rolled out nationwide over the summer.

The company opened its 300th petrol station, in Livingston, which is its third remotely-manned site offering customers fuel 24 hours a day.

Mr Coupe said, “Trading conditions are still being impacted by strong levels of food deflation and a highly competitive pricing backdrop. These pressures, including the effect of our own targeted price investment, have led to a fall in like-for-like sales for the quarter.

“We outlined in our Strategic Review in November some of the key actions we would be taking to remain competitive in this environment and are encouraged by some of the early trends that we are seeing in our key trading and operational metrics.”

He said the company was committed to cost savings “withot impacting the customer experience”.

Online sales will continue to grow and the company now has 20 grocery Click & Collect sites and remains on track to have 100 by the end of this year. Groceries online had a record week in the quarter with 256,000 orders.  The number of delivery slot options has been increased to give customers greater flexibility. Three Argos digital stores opened during the quarter and there will be ten by the end of the first half. The convenience business remains in double-digit growth and ten convenience stores opened during the quarter.

“Despite the challenging market conditions, we are confident that we are building on strong foundations and making good progress with our strategy,” said Mr Coupe.

“We continue to invest in our broad range of products and services and our multiple channels to market. These areas represent strong future growth opportunities and contribute towards our resilience in the current trading environment.”

Nicla di Palma, equity analyst at Brewin Dolphin, said: “Despite the difficult market conditions, management is confident that it is making good progress with its strategy. It continues to invest in the areas with the highest growth potential which will contribute towards its resilience in the current trading environment.

“We do not see any change to earnings expectations at this point (£557m in pre-tax profit, compared to £681m last year): even at these levels, Sainsbury’s profitability will be significantly better than its listed peers. The announcement  by Morrisons that it will cut prices further is a marginal negative, but we continue to believe that Sainsbury is the best placed amongst the three listed supermarkets.”

John Ibbotson, director of the retail consultancy Retail Vision, said: “Sainsbury’s woes cannot simply be explained away by food price deflation.

“While Sainsbury’s strong fresh food offering was a key differentiator last year, falling food prices now mean its heavy reliance on groceries is proving an increasing drag on profits.

“But the brand’s cardinal sin is complacency. For too long its robust results gave it the misplaced confidence that its higher-end image would protect it from the charge of the discounters.

“With Waitrose and M&S still very strong at the top end of the market, and faced with a resurgent Tesco and a Morrisons which is finally stopping the rot, Sainsbury’s is caught between a rock and a hard place in the middle ground.

“Sainsbury’s is fighting a war on two fronts. History shows that such wars are rarely won.

“Mike Coupe says they are making good progress with their strategy, but his plans are short on the sort of drastic action that his rivals have successfully taken to raise their games.

“At a time of such fierce competition and rapid change in retailing, Sainsbury’s simply isn’t doing enough to stand out.

“In the current environment, not standing out is a sure fire way to lose sales fast.”

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