• Sainsbury’s is playing the long game

        • Sainsbury’s management appeared unfazed after emerging as the underperforming grocer this quarter. Should investors be worried? In the short term, Sainsbury’s may struggle, but they have solid long-term prospects. This is according to Molly Johnson-Jones, Senior Retail Analyst, GlobalData.

          Margins have dropped to 1.9 per cent and like-for-like sales increased by only 1.6 per cent which is poor when it is reportedly passing on inflation of 1.7 per cent. All the other major supermarkets performed above expectations, even the floundering ASDA moved into positive l-f-l after twelve consecutive quarters of negative growth.

          The theme within the food retail sector has been one of anticipating inflation, moving to offset the impact on margins with cost savings programmes and range manipulation, along with efficiency targets. This has resulted in relatively stable margins for the majority of the grocers, alongside impressive cost reduction, and the best sales growth for five years. Sainsbury’s is therefore the anomaly here.

          This can mean one of two things: Sainsbury’s is struggling more than the other grocers to weather the storm; or Sainsbury’s is less short-term focused than the other grocers and thus playing the long game.

          Muted sales growth and a lack of evidence for the momentum from Q1 continuing into Q2 (Q1 l-f-l was 2.3% and for Q2 it was 0.6%) is problematic for Sainsbury’s, and with its positioning as a more premium grocer, consumers trading down instore and to cheaper competitors is more pertinent. However, they are still growing and the poor weather has a strong effect this quarter due to its high proportion of fresh food. 

          If we look at the factors eating into Sainsbury’s profit, we can see that it comes from (in order of size) price investment, input cost inflation, and Argos losses (Argos is loss-making in H1, making most of its profit over the festive period). Ignoring Argos losses, the contributors to margin decline are therefore factors which all other supermarkets are experiencing.

          Sainsbury’s is highly focused on adapting to consumer consumption trends – its product innovation and range consolidation is unrivalled, same day delivery is being extended, and space repurposing has been successful with Argos. In addition, in H1 2017/18 it chose to absorb much of the cost inflation without offsetting it against efficiency savings, thus dragging on margins, and allegedly this level of investment is unlikely to happen again.

          Fundamentally, Sainsbury’s needs to improve its growth in Q3 to avoid leaching market share, but one bad quarter hasn’t prompted them to ‘chase unprofitable volume’ as Mike Coupe put it. We have confidence that Sainsbury’s is adapting to the consumer the best out of all of the supermarkets, but the problem is that its niche is slightly more upmarket than the others of the big four, and thus in a time of critical uncertainty, without offsetting, margins are going to take a temporary hit. It is well placed to chase the consumer and develop with demand, and thus we think that this strategy of allowing margin decline (within reason) is actually more of a tactical long-term play, than disguising short term panic.

        • Stay up to date - Click here and register for FREE OEN online membership and enjoy unlimited access to a host of benefits including the exclusive members area of the website, downloadable business tools, current and back issues archive, priority breaking news alerts, weekly e news summary and the OEN app

        • Related Articles

        • Over half of UK’s retailers risk revenue losses due to slow website speeds

          Over half of UK’s retailers risk revenue losses due to slow website speeds

          Monday 20th Nov 2017 by clareb
          A study of the UK’s leading e-retailers has revealed that poor page speeds are putting their Black Friday and Christmas sales at risk. The research, carried out by ecommerce and digital agency Visualsoft, found that 54 per cent of leading...Read More...
          2017 office design trends that are here to stay

          2017 office design trends that are here to stay

          Friday 17th Nov 2017 by clareb
          This past year has seen the continuation of three strong trends dominating office interior design and they will likely continue to shape much of 2018 too. While some design trends come and go, these are likely to have more longevity because they refl...Read More...
          Budget: Cutting VAT could plough billions into UK businesses

          Budget: Cutting VAT could plough billions into UK businesses

          Friday 17th Nov 2017 by clareb
          Research from commercial insurer, NFU Mutual, has found that over half of consumers would be likely to spend the extra savings, gained as a result of a VAT cut, if it is announced in the Chancellor’s Budget. A cut in VAT by 5 per cent could pr...Read More...
                • About Us

                  OEN is the leading source of business news and information for buyers of office equipment, supplies and services within mid tier and up sized organisations. Our multi-platform approach delivers relevant, engaging and focussed content via our main printed magazine, bespoke guides and supplements, website, digital editions, apps, and newsletters with an unrivalled reach across the industry. A highly trusted and respected brand for many years, the print version of OEN last year celebrated its Diamond anniversary.

                  For our latest Media packs and more details on our range of services click here

                • View Latest Issue