Sainsbury’s must not neglect core store formats in wake of supermarket sales fall, says Planet Retail

Sainsbury's: growing convenience business

Sainsbury’s: investing £150m in price cuts and trialling new store formats

Sainsbury’s has reported a £290m pre-tax loss and a 2.1% fall in like-for-like sales in the 28 weeks to 27 September 2014 and warned same store sales in supermarkets will be falling for the next few years.

In redress, Sainsbury’ said it plans to improve the quality of 3,000 own-brand products and will invest an additional £150m in lowering prices.

The supermarket also plans to grow its non-food business and roll out clothing online in 2015.

Following a review, Sainsbury’s said it will also be developing new concept pilots for different-sized supermarkets, which it will trial these over the next year.

David Gray, retail analyst at Planet Retail, said: “This morning’s numbers underline the extent to which Sainsbury’s competitive position has deteriorated sharply in a market undergoing seismic structural shifts. The twin threats of falling or flat industry food volumes alongside the seemingly unstoppable growth of the hard discounters are now hitting the company performance hard.

“In light of sharp declines in like-for-like sales and profits, Sainsbury’s has taken drastic measures. In a case of ‘know thine enemy’, it has joined the discounters with the opening of a first Netto store in Leeds, in partnership with Danish operator Dansk Supermarked. Although allowing Sainsbury’s to tap into the UK’s fastest-growing bricks and mortar grocery channel, further investment beyond the £12.5m already pledged will be needed at a time when cash is proving increasingly hard to come by.

“Although prudent to reduce capex, funded predominantly through a slowdown in big-box openings, Sainsbury’s must be careful not to neglect its core hypermarket and superstore format – which still accounts for the lion’s share of its sales and profits. This core format generates almost 80% of Sainsbury’s sales and probably a higher proportion of profits.

“By contrast, the ‘sexier’ and apparently burgeoning channels of convenience and online account for just 7% and 4% of company sales respectively. Both will undoubtedly grow strongly – but even so, by 2018 we’re looking at a sales share of 11% for convenience and 5-6% for online. Big increases, yes, but still small relative to the critical big-box channel. Sainsbury’s must therefore continue to give its largest channel the attention it deserves.”