Sainsbury profit slump ‘shows food industry challenge’

By Michael Stones

- Last updated on GMT

Sainsbury's profit slump 'reflected the challenges facing the whole food industry'
Sainsbury's profit slump 'reflected the challenges facing the whole food industry'

Related tags Sainsbury Supermarket

Sainsbury’s 17.9% slump in underlying pre-tax half year profits to £308M reveals the challenges facing the whole food industry, according to a leading retail analyst.

Battling fierce competition from other multiple retailers and the limited range discounters, Sainsbury reported retail sales, excluding fuel, down by 0.1% and like-for-like sales down by 1.6% for the 28 weeks to September 26. The result represented the retailer’s seventh consecutive quarter of falling underlying sales.

The UK’s third biggest grocery retailer now faced a simple choice – invest in price or lose out to cut-price rivals – said  Planet Retail’s David Gray.

‘Face harsh realities’

“With food price deflation now entrenched, and discounters growing market share, mainstream operators like Sainsbury must face up to the harsh realities – invest in lower prices or lose out to cut-price rivals,” ​he said.

At least from a top line trading point of view, Sainsbury appeared to be on an improving trend with second quarter like-for-like declines narrowing those of the first quarter, Gray added.

The “very modest”​ improvement can be attributed partly to robust convenience division growth and initiatives to update “big-box concepts to a new retail reality”.  ​The retailer was trialling a mini c-store concept and six future-format outlets, which may offer growth opportunities.

Also, the retailer was said to benefit from fewer very large stores. Gray concluded: “The outlook for sales performance going forward may not be so bleak after all. Profits, however, are another matter entirely.”

‘Profits … are another matter entirely’

Sainsbury boss Mike Coupe claimed the retailer was making good progress against the strategy set out a year ago.

“We are delivering volume and transaction growth as customers value our quality improvements and our clearer, simpler message of lower regular prices,”​ said the ceo.

To complement our core food offer of great quality and inspiring food, sold at fair prices, we are delivering on our strategy to expand our non-food businesses with further growth in clothing, general merchandise and Sainsbury’s Bank.”

Sainsbury’s cost savings programme was ahead of plan, with savings predicted of about £225M by the end of this financial year. The business was on track to deliver its target of £500M cost savings over the next three years.

“The grocery retail marketplace remains challenging but Sainsbury is a great business, run by an experienced management team, supported by talented colleagues and strong values,”​ said Coupe.

“I am confident we are making progress and we are looking forward to a successful Christmas, offering our customers fantastic products and great value.”

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