Price cutting still impacting

Vinyl proves a hit but Sainsbury’s off key in Q1

Sainsbury's LocalSainsbury’s decision to start selling vinyl records is proving a hit with customers.

In March, the company reintroduced discs after a 25 year absence and the supermarket chain is currently the biggest vinyl retailer on the high street.

It has already achieved an 8% market share and provided a boost to its general merchandise division which saw sales up 5%.

However, while there was also growth in clothing and at Edinburgh-based Sainsbury’s Bank, the group continued to feel the squeeze from price-cutting competitors. Like for like sales fell 1% in the first three months of the year.

The core grocery market remains highly competitive. Mike Coupe, chief executive, said: “Market conditions remain challenging. Food price deflation continues to impact our sales and pressures on pricing mean the market will remain competitive for the foreseeable future.

“However, we are confident that our strategy to be a trusted multi-channel, multi-product and services retailer is delivering and will enable us to continue to outperform our major peers.”

Clothing sales are up nearly 5% with the latest football-inspired range proving popular ahead of this month’s 2016 UEFA European Football Championship.

General merchandise grew at over 5%.

Sainsbury’s Bank continued its good performance during the quarter. It consolidated its travel proposition with a 28% increase in Travel Money transactions and a 10% increase in the take-up of travel insurance

The Sainsbury’s Local chain of convenience stores achieved growth of over 6% and the chain opened seven outlets in the quarter.

Groceries Online performed well with over 8% sales growth and nearly a 13% increase in orders.

Analysts’ reaction

John Ibbotson, director of the retail consultancy, Retail Vision, said: “Despite the upbeat tone of this trading statement, Sainsbury’s, make no mistake, is in a fight.

“The British grocery sector is fast becoming unrecognisable from what it once was. For Sainsbury’s, the ever-growing threat from the German discounters, extreme price-cutting from its peers in the Big Four and evolving shopping habits, have made market conditions nothing less than brutal.

“Sainsbury’s fall in like-for-like sales has brought to an end two years of modest sales increases and shows that it cannot escape the deeper malaise affecting the UK grocery sector.

“The shift to a medium-low pricing strategy has kept it in the game, but lacking the economies of scale enjoyed by the rest of the Big Four, Sainsbury’s is running out of road.

“Tesco, Asda and Morrisons have all put their houses in order and have taken the necessary action of cost cutting and fundamental business reorganisation.

“Some difficult decisions may lie ahead if Sainsbury’s is to remain competitive longer term.

“The Argos acquisition could boost its bottom line in the short-term as well as improve the grocer’s internet offer and logistics capability.

“But the monumental task of integrating the two businesses could also prove a toxic distraction for Sainsbury’s from the core business of grocery retailing.”

Photo: by Terry Murden

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