Sainsbury’s saw its sales drop over the last quarter as demand for general merchandise (GM) goods weakened significantly, and grocery faced tough comparatives with last year’s strong figures during the Covid lockdown. Its Chief Executive also highlighted that shoppers were cutting back on spending and warned that the financial pressures building on consumers would “only intensify” over the remainder of the year.
During the 16 weeks to 25 June, group like-for-like sales were down 4%. Sainsbury’s still doesn’t break down comparable sales by division, but total sales figures show the slump was largely driven by weakness in GM and clothing. Total sales in Argos plummeted 10.5%, while GM sales in Sainsbury’s supermarkets slid 14.6%. Clothing sales were down 10.1%.
In the main grocery business, total sales were down 2.4% against last year’s elevated levels, but they were still up 8.7% on pre-pandemic levels. Sainsbury’s stated that it was continuing to inflate prices behind its competitors as it invested £500m to remain competitive, funded by cost savings.
Sainsbury’s claimed that the value index against Aldi was its strongest ever, improving 350 basis points year-on-year. The chain recently expanded its Aldi Price Match campaign and added more items to its Price Lock scheme.
“We really understand how hard it is for millions of households right now, and that’s why we are investing £500m and doing everything we can to keep our prices low, especially on the products customers buy most often,” said CEO Simon Roberts.
“The pressure on household budgets will only intensify over the remainder of the year, and I am very clear that doing the right thing for our customers and colleagues will remain at the very top of our agenda.”
He noted some shoppers are already switching from branded products to Sainsbury’s cheaper own-label alternatives.
The results, described as in-line with expectations, followed a warning in June from Tesco that its customers were buying less and favouring cheaper products. Its underlying sales in the UK fell by 1.5%, while Morrisons recently reported a sales slump of 6.4%.
Despite the price investment and worsening economic conditions, Sainsbury’s said it still expected its underlying pre-tax profit for the year to be between £630m and £690m.
However, with a larger share of its sales coming from general merchandise compared to its rivals, analysts warned that Sainsbury’s is more exposed to pressure on consumers’ disposable income.
Interactive Investor said the chain faced intense competition: “The market consensus of the shares as a hold suggests that the jury is currently out on Sainsbury’s immediate prospects, with Tesco (strong buy) being the clearly preferred play”.
NAM Implications:
- Inevitable hit on GM, now and into next year, given high inflation pressure on food consumption.
- Key will be to what extent Tesco and Sainsbury’s will sacrifice profit to price-compete with discounters…
- …given that Asda and Morrisons, under PE influence, need to preserve EBITDA.
- Tesco holding most of the good cards, methinks!
