Sainsbury’s blames deflationary environment for decline in second quarter sales

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Sainsbury's: growing convenience business

Sainsbury’s: trend to shop little and often results in smaller basket sizes

Sainsbury’s has reported a 2.8% decline in like-for-like sales in the second quarter, excluding fuel, and blamed the deflationary environment for the fall.

Total retail sales in the 16 weeks to 27 September 2014 were down 0.8%.

Mike Coupe, chief executive, said: “The market remains dynamic and fiercely competitive. The long-running trend of more frequent, convenient shopping has accelerated, resulting in smaller basket sizes. An increase in price investment and short-term competitor promotional activity, combined with favourable commodity markets, has resulted in deflation in many areas of our food business.”

Coupe said Sainsbury’s is focused on serving customers in the channel of their choice. Its convenience business is reported to be growing at around 17% and achieves annual sales of £2bn. Groceries online grew by around 7%.

During the quarter Sainsbury’s opened 23 new convenience stores and refurbished 10 convenience stores. It opened two new supermarkets, three supermarket extensions and refurbished a further two supermarkets.

Coupe said Sainsbury’s is on track to deliver five new Netto stores by the end of the year and around 750,000sq ft of new space this year, including around two new convenience stores per week.

“In the second quarter, our performance has been impacted by the accelerated pace of change in the grocery market, including significant pricing activity and food price deflation in many areas,” said Coupe.

“These conditions are likely to persist for the foreseeable future and we now expect our like-for-like sales in the second half of the year to be similar to the first half. We will provide a detailed strategic update at our interim results on 12 November 2014.”

David Gray, retail analyst at Planet Retail, said the results mark a watershed moment for both Sainsbury’s and the wider UK grocery industry.

“The sharp decline in like-for-like and total sales at the retailer will send shockwaves across the market,” he said. “First it was Tesco, then Morrisons, and now even Sainsbury’s is reeling from the effects of seismic structural changes rumbling across the UK food sector.”

According to Planet Retail, the hard discounters are just one factor driving this change. Shifting shopper habits – consumers shopping little and often at convenience stores, smaller online baskets, households wasting less and evaporating hypermarket impulse spend – are all underpinning this shift, Gray said.

“With volumes already dwindling and values expected to hit negative later this year in the face of ever-diminishing price inflation, the situation can only worsen. All this makes it increasingly likely Christmas will be a complete washout for the UK’s major grocers.”