Sainsbury’s must place greater focus on GM in 2022, says GlobalData

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Following today’s release of Sainsbury’s figures for Q3 FY2021/22; Zoe Mills, senior retail analyst at GlobalData, a leading data and analytics company, offers her view: “Despite this somewhat lacklustre Q3 performance, Sainsbury’s will not be too disheartened given the backdrop of these results, namely that they are against a strong comparative period significantly impacted by the ongoing COVID-19 pandemic. Its grocery division held up best with a minor decline of 1.1% year-on-year and is up 6.6% on a two-year basis. This highlights that its Food First strategy continues to be the right move in rejuvenating its food proposition in light of the competition in the value segment of this sector. Indeed, with grocery sales up 0.1% for the six weeks to 8 January 2022, its performance only just falls short of Aldi, which reported its UK sales were up 0.4% for the December 2021 period, supported by its own Aldi price matching scheme and My Nectar Prices initiative. Structural cost savings and higher grocery volumes have resulted in a forecast rise in expected full-year profits to at least £720m. However, if Sainsbury’s does achieve this lower end of guidance, underlying pre-tax profits would still be down £10m on FY2020/21.

“While Sainsbury’s focus in its food proposition during the pandemic has been apt as consumers face rising prices elsewhere (such as in their energy bills), more attention must be given to its non-food proposition this year. General merchandise (GM) sales have worsened during the financial year, going from a single digit decrease in Q1 to declines of 16.0% in Q3. This was driven by its Argos fascia (-16.1%), which shuttered 27 standalone stores in the quarter and supply chain issues in core sectors. Indeed, key gifting sectors such as technology, gaming and toys saw double-digit declines during the period. While a decrease in GM sales was expected, with sectors such as electricals and home proving more popular during the height of the pandemic in 2020, a 9.1% sales decline on a two-year basis highlights a greater urgency to ensure former Argos customers are transferred to Argos’ shop-in-shops in its Sainsbury’s locations, and give more attention to its Argos USP given its competitors lack a robust non-food offer.”

Richard Lim, CEO, Retail Economics said: “These are very encouraging figures, portraying a defiant consumer who prioritised Christmas get-togethers despite rising anxieties about the virus. Food sales held up well against the previous year (given the restrictions 2020) as more family gatherings took place and consumers indulged across premium lines.

“To ensure a covid-free Christmas, many people limited their social interactions in the run-up the big day, boosting home-cooked meals to the detriment of the hospitality sector. This displacement of spending from bars, restaurants and pubs supported food sales over the period.

“The retailer was also much better placed to cope with the surge in online grocery sales having invested heavily to boost capacity and improve efficiency over the last couple of years. A wave of new online grocery shoppers helped almost double sales on 2019 levels.”