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Sainsbury's Sales Slump Heightens its Delicate Condition: Gadfly

Published on Jun 8 2016 1:00 PM in Features tagged: Retail / Sainsburys / UK / Gadfly

Sainsbury's Sales Slump Heightens its Delicate Condition: Gadfly

Unlike its shiny orange logo, Sainsbury's sales momentum is fading.

Sales from stores open at least a year, excluding fuel, fell 0.8 percent in the three months to June 4, a big turnaround from the 0.1 percent increase in the previous quarter. While this did beat market expectations, it's not a welcome result.

Some of the slow-down could be from the grocer's shift to avoid yo-yoing promotions and achieve stability in pricing. It has moved away from multi-buy deals, such as three steaks for £10, and replaced these with lower prices on individual items. It has also ditched its pledge to be cheaper on branded products than rival Asda.

Of course, the benefit of these measures may yet come through. But the weakness comes at a delicate time as it wages a battle on two fronts.

While Sainsbury's same-store sales growth has outpaced rivals Tesco, Asda and Morrison in recent years, its rivals aren't being complacent.

Tesco is gaining ground on sales -- even though profit expectations have disappointed investors. Morrison is regrouping under the leadership of former Tesco executives.

And Asda, which was the worst performer of the U.K.'s big four supermarkets in 2015 in terms of same-store sales growth, has decided to fight back. Parent company Wal-Mart plans to shift its focus from protecting profit to taking market share from rivals.

That would be a difficult combination for a supermarket to deal with at any time.

But Sainsbury faces fighting off the renewed competition while integrating struggling catalog and online retailer Argos, which it's buying for 1.4 billion pounds ($2 billion).

Shares in Sainsbury have fallen 5 percent this year, under performing both the FTSE All-Share Index and the FTSE All-Share Food and Drug Retailers Index. They trade on a forward price earnings ratio of 11.6 times, at a discount to both Tesco and smaller rival Morrison.

That is justified by the deteriorating performance and the potentially tricky Argos acquisition.

By Andrea Felsted. This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

News by Bloomberg, edited by ESM. To subscribe to ESM: The European Supermarket Magazine, click here.

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