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Sainsbury's dragged into the red

Published 06/05/2015

Evron Food's customers include major supermarkets Sainsbury's, Waitrose and Asda
Evron Food's customers include major supermarkets Sainsbury's, Waitrose and Asda

Sainsbury's followed its rivals into the red today as it blamed a year of "unprecedented" change for the company's first loss in a decade.

A fortnight after Tesco's £6.4 billion annual loss, Sainsbury's registered a more modest deficit of £72 million, with the figure dragged lower by a one-off write-down of £628 million on the value of its property estate.

Even when stripping out exceptional items, the grocer's 14.7% fall in underlying profits to £681 million was the first decline since the start of former boss Justin King's successful turnaround strategy in 2005.

His successor Mike Coupe, who took over from Mr King in July, reported a 1.9% drop in like-for-like sales for the year to March 14 and said food price deflation meant the chain did not expect an improvement this year.

He said: "The UK marketplace is changing faster than at any time in the past 30 years which has impacted our profits, like-for-like sales and market share.

"However, we are making good progress with our strategy, and our investment in price and quality is showing encouraging early signs of volume and transaction growth."

The company also cut its full-year dividend for shareholders by 23.7%.

The value of the company's property decreased during the year by £900 million to £11.1 billion, mainly due to a reduction in market rental values. The group has 597 supermarkets and 707 convenience shops.

It is slowing its expansion and expects to deliver around 450,000 sq ft of gross new space, with one to two new convenience store openings per week. This compares with the addition of 733,000 sq ft of selling space in the previous year, when it opened eight new supermarkets and 98 convenience stores.

Britain's big four grocers - including Tesco, Morrisons and US-owned Asda - are engaged in fierce competition as they scramble for market share, which is being eaten away by discounters Aldi and Lidl.

Morrisons recently reported a full-year loss of £792 million.

In November, Mr Coupe unveiled a wide-ranging plan to fight back against the discounters, including a £150 million investment in price cuts over the next year and an improvement in the quality of 3,000 own-brand products.

He is also looking for cost savings of £500 million over the next three years.

Mr Coupe has pointed out that a quarter of its stores have under-used space and over the next five years this will be used to expand non-food goods and also be given over for in-store concession partnerships.

Julie Palmer, a retail expert at business turnaround specialist Begbies Traynor, believes that recent signs of improved trading at Tesco will adversely impact Sainsbury's more than the other big supermarkets.

She added: "Sainsbury's hasn't been investing anywhere near as much as Asda and Morrisons when it comes to price cuts, relying rightly or wrongly on its quality credentials instead.

"Although many of Mike Coupe's initiatives look good on paper, the real question is whether these go far enough to deliver the value, service and quality that customers demand and that will clearly differentiate Sainsbury's offering away from the discounters, Waitrose and its larger peers.

"I fear that its proposition may simply be too middle of the road to gain traction with consumers attuned to seeking either best price or top quality products."

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