Sainsbury’s results today reflect the harsh nature of the trading environment.
Like its rivals it is having to contend with a slow grocery market and increasing cost inflation. However, Sainsbury’s continues to face additional challenges in the shape of a resurgent Tesco and Morrisons. It also finds its core business fighting against intense competition from Aldi and Lidl as they open more stores in Sainsbury’s southern heartland. This last point in particular should be a point of concern for the grocer as the discounters still have substantial scope to open new stores and gain new customers in the south east of England.
Despite challenges at the food business, the retailer is still able to tell a positive story. The retailer’s core own label business continues to grow, online and convenience delivered solid growth and we believe the retailer’s removal of multi-buy promotions will benefit shopper price perceptions and ultimately sales. We also know that Sainsbury’s maintains better quality perceptions than its rivals – an important asset at a time when the ability to create points of differentiation is crucial. The question still to be answered is how to reinvigorate supermarket sales, where the retailer admitted to a 2% decline. Overall we believe Sainsbury’s has a strong proposition at its core and is well placed to return the food and grocery business to growth. Indeed Kantar today reported Sainsbury’s greatest rate of sales growth since October 2014 – perhaps an early sign of improving performance.
The retailer’s group sales benefited from a strong Argos performance. We remain convinced that Sainsbury’s made a shrewd move in its takeover of Argos and see substantial opportunities to integrate the two business more closely through shops in shops and to strip cost out of the combined business. Sainsbury’s is well placed to develop its position as a leading cross-category multi-channel retailer which is adapting to serve a changing, increasingly connected and convenience seeking shopper.