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Sainsbury's reports 0.8% fall in sales amid 'challenging' trading

Published 08/06/2016

Sainsbury's recently began scrapping multi-buy promotions and has ditched its brand-match guarantee in favour of overall lower prices
Sainsbury's recently began scrapping multi-buy promotions and has ditched its brand-match guarantee in favour of overall lower prices

Sainsbury's has posted a fall in sales as it remains under pressure amid a supermarket price war and cautioned over "challenging" trading.

Britain's second biggest supermarket reported a 0.8% drop in like-for-like sales excluding fuel for the 12 weeks to June 4.

The fall marks a setback after a return to quarterly like-for-like growth for the first time in more than two years the previous three months, when sales edged 0.1% higher.

Mike Coupe, chief executive of Sanisbury's, 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."

Sainsbury's recently began scrapping multi-buy promotions and has ditched its brand-match guarantee in favour of overall lower prices.

The first quarter update comes as the group's £1.4 billion takeover of Argos owner Home Retail Group faces scrutiny from the competition watchdog.

The Competition and Markets Authority (CMA) said last month it was looking into whether the tie-up with Argos owner Home Retail could result in a "substantial lessening of competition".

It will consider comments on the deal and decide whether to launch an inquiry by July 25.

Mr Coupe said he was "as confident as we can be" that the Home Retail deal will be cleared in the CMA's initial inquiry, with the group adding that it remains on track to complete the takeover in the third quarter.

He insisted the group's decision to end multi-buy deals was not denting trade, with the number of customer transactions up on a like-for-like basis.

He admitted the decline in first-quarter sales was a "slight step back", but said the chain would stick to its strategy and continue to lower everyday prices.

The group has slashed prices on staple items such as whole chickens, free range eggs and cheddar cheese in response to customer feedback.

It now has around 23% of goods on promotion, down from more than 30% a year ago.

Mr Coupe gave hope of an easing in the food price deflation that has been hitting the sector hard, saying it is now running at around minus 1% against falls of up to 2.5% last year.

But Sainsbury's believes food price deflation will continue until at least the autumn.

However, its clothing arm is helping offset the food price woes, with sales growth of nearly 5% in its first quarter.

This month's Euro 2016 football championship could also provide a boost.

Mr Coupe said: "If the sun shines and it's a barbecue weekend, we tend to see a spike in business."

But the weather is likely to play more of a part overall in its summer trading, he added.

Sainsbury's said it was already receiving a Euro 2016 fillip, with strong sales of its football- inspired menswear range.

The group added that the vinyl record comeback was also helping its non-food sales, with the chain now the biggest vinyl retailer on the high street, with an 8% market share.

It reintroduced vinyl records after 25 years in March.

Shares in Sainsbury's edged 1% higher as the first-quarter sales performance came in better than feared following recent disappointing market share data.

The f igures from Kantar Worldpanel estimated that sales at Sainsbury's dropped by 1.2% in the 12 weeks to May 22, pushing its market share down to 16.2% from 16.5% a year earlier.

Sainsbury's was outperformed by market leader Tesco, which notched up its first market share rise after two years of declines, to 28.6% from 28.3% a year earlier.

Clive Black, at Shore Capital, said the first-quarter sales update from Sainsbury's was "marginally disappointing but far from a car crash".

Laith Khalaf, senior analyst at Hargreaves Lansdown, added: " Football can bring profits home for retailers, and Sainsbury's is one of the companies benefiting from consumer activity ahead of the forthcoming European Championship.

"Make no mistake though, things are still tough on the high street. Food price deflation is still depressing grocery sales, and the discounters Aldi and Lidl are still nibbling at the big supermarkets' heels."

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