Sainsbury’s latest casualty of supermarket war
Sales at long-standing Sainsbury’s stores fell by 1.9 per cent in Q1 this year, as the supermarket giant suffered in the current supermarket war (including price cutting and increasingly stiff competition from discount chains) and wider economic pressures (such as price deflation and changing consumer behaviour).
Losses suffered by larger, out-of-town outlets were partly offset by the strong performance of the chain’s new ‘convenience’ sized stores and online services.
In November, Sainsbury’s stepped up the fight against competitors, cutting costs, dividends and investment in new stores to fund an extra £150m in price cuts.
“We expect the market to remain challenging for the foreseeable future,” commented Sainsbury’s chief executive Mike Coupe. “Food deflation is likely to persist for the rest of this calendar year, and competitive pressures on price will continue.”
Sainsbury’s also faces pressure from the resurgence of Tesco; earlier this month, Kantar Worldpanel reported the firm’s sales were up by 1.1 percent in the 12 weeks to 1 March, its strongest performance in a year and a half. Bryan Roberts, Kantar’s retail insights director, said that Coupe “needs to be agile to fend off the resumption of heavy bombardment from Tesco.”
John Ibbotson of Retail Vision likewise identified Tesco as Sainsbury’s biggest threat, noting that “Tesco’s market share is almost twice that of Sainsbury’s; it has bigger margins to give back to its customers.” Without better prices, Ibbotson believes, “Sainsbury’s is not going to be able to catch up.”
Phil Dorrell of Retail Remedy, however, defended Sainsbury’s. He believes that “Coupe has invested well in profitable smaller format stores, and this will be crucial over the next year.”
“I hope the City are able to take a longer-term perspective, and not expect miracles. So far, investors have backed Sainsbury, but for much longer remains to be seen.”
The supermarket’s full-year profits are scheduled to be published in May; they are expected to record a fall, the first in almost a decade. City analysts predict the results will represent a 17 per cent decline on last year, to £659million
Sainsbury’s shares are also down by 14 per cent on last year.
Commenting on the fall, Richard Hunter of Hargreaves Lansdown said “there is every likelihood the full year results will mean a significant cut to the dividend.”
A spokesperson for Cantor Fitzgerald said that a further dividend reduction “will remove one of the stock’s key attractions, the dividend yield – currently standing at 6.3 per cent.”
“Nonetheless,” they concluded, “we maintain our HOLD recommendation on Sainsbury’s with a TP of 275p.”