Sainsbury’s reports second consecutive quarter of falling sales

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Sainsbury’s: fall in like-for-likes but convenience potential

Sainsbury’s has reported a second consecutive quarter of falling sales.

Like-for-like sales, excluding fuel, in the 12 weeks to 7 June 2014 were 1.1% lower compared with a year earlier.

Sainsbury’s reported its first fall in sales for nine years in March.

David Gray, retail analyst at Planet Retail, said: “This morning’s results, despite showing an improvement on Q4, underline that even Sainsbury’s – until recently the darling of the UK grocery sector – is struggling to achieve growth. In view of the tough competition on price – a battle into which Sainsbury’s is being slowly drawn – figures this year will show slower growth than last year’s.

“Sainsbury’s successful Brand Match pledge – which has recently been expanded to include all baskets of 10 products or more (with at least one branded item) – is driving Sainsbury’s deeper into the realm of price reductions and is a response that, in the long run, will undoubtedly impact company margins. Sainsbury’s is particularly vulnerable in this respect, having a lower operating margin than bigger rival Tesco. It is also trading in an environment where food volumes continue to stagnate.

“Even so, Sainsbury’s still has considerable long-term growth potential – with about half the market share of bigger rival Tesco. It is aggressively pursuing convenience expansion and we are forecasting that sales at its c-store business will reach more than GBP3.5 billion (USD5.8 billion) by 2018. In terms of its convenience store estate, it is still miles behind Tesco with approximately 600 outlets compared to more than 2,000 (including Express and One Stop) operated by its arch-rival. Clearly, room for growth exists; it is more a question of how can Sainsbury’s access it?

“Sainsbury’s also continues to benefit from its lack of exposure to very large hypermarkets (over 100,000sq ft) and the fact that its heartland is the affluent south-eastern corner of England. With rivals now back-tracking on how they allocate space to non-food, Sainsbury’s is, in a way, reaping the rewards of being a tortoise rather than a hare in big-box. While others are being forced to rethink GM space, Sainsbury’s is able to tailor its non-food offer more proactively, as opposed to reactively.”

Bryan Roberts, director of retail insights at Kantar Retail, said: “While we wouldn’t necessarily rush to join those identifying the dip in Sainsbury’s sales as a turning or inflection point, it would seem prudent to suggest that Sainsbury’s incredible run of form has well and truly come to an end.

“With Asda now ruling the roost among the big rour and Aldi, Lidl, Waitrose and M&S outflanking their larger mainstream competitors, the market is only going to get more difficult.

“Although we are heartened by the encouraging, if belated, move into online fashion and click & collect grocery, Mike Coupe faces an uphill struggle in reversing the declining trend in like-for-likes. With Tesco desperately seeking recovery and the Co-op poised to raise its game, Sainsbury’s could face further pressure in the coming months and quarters. If Sainsbury’s has any decent strategic aces up its sleeve, now might be the time to play them.”