Supermarket Price War Hits Sales At Sainsbury’s Whilst Argos Sees Robust Growth

Sainsbury’s has reported another fall in quarterly sales after it was forced to cut prices to remain competitive.

During the 16 weeks to 24 September, the chain’s like-for-like retail sales were down 1.1%, worsening from a 0.8% fall in its first quarter. However, Chief Executive Mike Coupe blamed the weak sales performance on food price deflation and said it had delivered like-for-like transaction growth across all channels and total volume growth.

The group added that it had now removed the vast majority of multi-buy promotions in favour of lower, regular prices which was helping it generate its highest-ever customer satisfaction scores. During this quarter, Sainsbury’s highlighted that it had made significant cuts in the price of broccoli, onions, Margherita pizza and its own-brand nappies.

Sainsbury’s convenience business and general merchandise offer continued to outperform its supermarkets with growth of 7% and 4% respectively. Its online grocery service also delivered 8% sales growth and nearly 12% growth in customer orders.

Meanwhile, the group’s newly-acquired Argos business posted robust growth for its second quarter to 27 August. Total sales grew 3% whilst like-for-like sales were up 2.3%.

Coupe commented: “Our ambition is to help customers live well for less. We have made further investment in everyday low prices and continue to improve the quality of our products. Our general merchandise and clothing offer is popular with customers and the acquisition of Home Retail Group will accelerate our multi-product, multi-channel strategy.”

He added: “We expect the market to remain competitive and the effect of the devaluation of sterling remains unclear. However, Sainsbury’s is well positioned to navigate the changing marketplace and we are confident that our strategy will enable us to continue to outperform our major peers.”

Commenting on the results, John Ibbotson, director of retail consultancy Retail Vision, said after outperforming its peers in recent years, Sainsbury’s has come down to earth with a bump. “The speed with which the tables have turned says much about the intensity of the competition in the market. A year ago Sainsbury’s was congratulating itself for retaining its middle-class clientbase while the German discounters decimated their rivals at Tesco and Morrisons,” he said.

“Now Tesco and Morrisons have staunched their losses and are fighting back with aggressive price cuts and some fundamental reforms to their structure. By contrast Sainsbury’s abolition of multi-buy promotions, and its introduction of simpler pricing, look distinctly underwhelming in the current brutal market conditions.”

However, he added that Argos should help boost Sainsbury’s bottom line in the short-term as well as improve its internet offer and logistics capability, adding: “But integrating the two firms will be time-consuming and distracting, and in the current environment Sainsbury’s cannot afford to take its eye of its core grocery business, even for a second.”

NAM Implications:
  • Where at: Sainsbury’s obviously on the way back, with the added complication of combining two business models – Sainsbury’s Food and Argos Non-food – and also  B&M and online, with the City judging the company by total group performance, especially financials, in a market still influenced by discounter growth and convenience
  • Where headed: All of this in a run–up to an unprecedented Christmas price-war
  • Effect on you: Financial performance will colour Sainsbury’s relationships in terms of the lens through which they see supplier partnerships i.e. they will be particularly sensitive to financial impact on their performance in all business models
  • Action: From latest annual returns try to identify where your categories fit, then work out cost and value to Sainsbury’s of each element of your offering , and re-engineer where necessary
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