The supermarket, which recorded a 0.8% fall in like-for-like (LFL) retail sales (excluding fuel) for the 12 weeks to June 4, continued to trade in a challenging and deflationary market, Shore Capital director and head of research Clive Black said.
The “collective rejuvenation” of its biggest competitor Tesco and Morrisons meant that the “free lunch” Sainsbury was gaining from for some time may be closed off, Black explained.
“Collectively, market conditions and competitor developments serve to make the trading environment that little but more tough for Sainsbury, just as it is about to engage in its Argos adventure – Competition Markets Authority [CMA] permitting,” he said.
“We see such a performance at a headline level to be marginally disappointing, but far from a car crash.”
Disappointing start to the year
David Alexander, senior analyst at Verdict Retail, agreed that it had been a disappointing start to the year for Sainsbury, particularly given that Tesco’s LFLs had grown by 0.9% in its full year and Morrisons recorded Q1 LFL growth of 0.7%.
He said: “Sainsbury and Tesco have adopted similar approaches in their fightback [against the discounters], reducing complex promotional activity in favour of more stable low prices, aligning themselves closely with values that portray a more caring image, such as reducing waste and improving in-store service standards.
“So, while Sainsbury may lay claim to the notion that ‘our values make us different’, a quick perusal of the competition suggests that, at least in terms of its strategic objectives, it is far from unique.”
Q1 retail sales (excluding fuel)
Full-year 2015/16 retail sales (excluding fuel)
More positively, Connor Campbell, senior market analyst at www.spreadex.com claimed Sainsbury had “bounced back” in the past two weeks, after posting a 1.2% drop in LFL sales for the 12 weeks to May 22.
He said: “Having had such a traumatic time of it in the past six weeks – a period that saw its stock plunge from £2.88 to £2.46 on the back of weak full-year figures, news of a CMA investigation into the Home Retail Group acquisition and its worst drop in sales for over a year according to Kantar Worldpanel, Sainsbury bounced back with its Q1 results.”
Like-for-like transaction growth
On the back of today’s Q1 announcement, ceo Mike Coupe said Sainsbury had made a solid start to the year with LFL transaction growth across all channels.
He said: “Sainsbury is well-positioned. Our core food business offers customers choice, quality and a clear value proposition.”
However, Coupe added: “Market conditions remain challenging. Food price deflation continues to impact our sales and pressures on pricing mean the market will remain competitive for the foreseeable future.”
Sainsbury removed Brand Match in Q1 as part of “a simpler trading strategy to offer lower regular prices”.
Promotional participation levels, meanwhile, had reduced further in Q1, and were now tracking at 23% (down from over 30% this time last year).
Sainsbury said the vast majority of multi-buys will be phased out by August.