Sainsbury Q4 analysis

Sainsbury cuts discounters’ price lead

By Rod Addy contact

- Last updated on GMT

Sainsbury said Q4 volume sales increased for the first time in more than a year
Sainsbury said Q4 volume sales increased for the first time in more than a year

Related tags: Sainsbury, Grocery store, Price, Analyst

Sainsbury cut the price gap between it and discount retailers such as Aldi and Lidl in its fourth financial quarter (Q4), reflecting the discounters’ flagging momentum, a leading analyst has claimed.

“Sainsbury states it has seen a 9% improvement versus the limited assortment discounters (LADs), reiterating the prime emphasis of price investment is focused upon fresh foods,”​ commented Clive Black, director and head of research at Shore Capital.

“How these machinations pan-out remains to be seen but Sainsbury is encouraged by underlying transactions and fresh food volumes witnessed through Q4.

“Additionally, ​[Sainsbury ceo Mike] Coupe spoke of the easing in LAD momentum perhaps being a function of the price investment in every day lines by the big four ​[supermarkets] …”

That supported his view that the “free lunch” ​the discounters had enjoyed had come to end, Black claimed. “Whatever the numbers, the price differential between the LADs and the big four ​[supermarkets] has structurally narrowed,”​ he stressed.

‘Shift in performance’

Coupe told participants in an analysts’ call: “In the last two or three months there has been a shift in the performance of the mainstream operators relative to the discounters, but that’s a very early read and time will tell.”

Sainsbury had invested the £150M it had pledged in price cuts in November and January, he said. “The focus of our investment is on products that most closely match the discounters.

“Therefore you have seen a disproportionate amount of investment in those products and the gap ​[between Sainsbury and the discounters] has closed by 9%.”

“That’s not because the discounters have put their prices up, but relatively speaking all the mainstream grocers, not least ourselves, have put their prices down on core commodity products.”

Sainbury’s pricing policy and the overall deflation had helped increase its volume sales for the first time in more than a year, said Coupe. That growth had been greatest in fresh food, where it had concentrated its price investment and had outstripped rivals, he claimed.

‘Optimism’

“There is volume growth in the market overall,”​ he acknowledged. “Our optimism is born of the fact that we think we are benefitting disproportionately from the volume dynamic and are seeing underlying like-for-like transactions improve.”

He also claimed the latest data he had indicated that Sainsbury was growing its volume share of the grocery market.

However, George Scott, senior analyst at Conlumino warned against Sainsbury becoming overconfident. While Sainsbury remains upbeat about how its stronger focus on quality will elevate its offer from the rest of the big four as consumer spending power improves, it should also take warning from falling LFLs at more premium rival, Waitrose,” ​he said.

“Waitrose has benefitted from polarised demand in the grocery market over recent years, seeing consistent share growth through austere times off the back of its balance of enticing innovations and own-label options.

‘Price battle’

“However, it too has not been immune to falling loyalty in the sector and has increasingly been sucked into the wider price battle. Consumer perceptions of the value players continue to improve, and the traditional established players in market are finding it increasingly difficult to reply on quality as the influential differentiator it once was.”

Coupe denied that Sainsbury’s prices for items not covered in its price cuts had gone up, as they too had been affected by the overall deflation in the food market of 2.5%.

In Sainsbury’s stores, fruit and vegetables, meat and dairy products, had all been particularly affected by deflation as a result of commodity costs and competitive pricing, he said.

Sainsbury reported Q4 like-for-like sales excluding petrol down 1.9%, ahead of expectations​.

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