Sainsbury's Supermarket Sales Weaken Amid Shift To Lower Prices
UK grocer J Sainsbury Plc reported slightly weaker sales as it offered customers fewer promotions and switched to permanent price cuts on everyday items such as pizza and onions.
Same-store sales fell 1.1%, excluding fuel, in the 16 weeks ended 24 September, the London-based company said recently. That compares with analyst estimates for a 1% drop and the previous quarter’s 0.8% decline.
Like industry leader Tesco Plc, Sainsbury’s is reducing the number of its promotional deals and offering lasting discounts as it seeks to simplify its pricing and narrow the gap to discounters Aldi and Lidl. An intensifying grocery price war has led the company to reduce its reliance on food by acquiring the Argos general-merchandise chain for £1.4 billion ($1.8 billion), a deal that was completed this month. Chief executive officer Mike Coupe and his team now need to make a success of an acquisition that hasn’t won widespread backing.
“Argos has been a distraction—of course, a £1.4 billion purchase will be distracting—and the pressure to ensure that it delivers a return will be immense,” Phil Dorrell, an analyst at consultant Retail Remedy, said via email.
The shares rose 0.5% to 252.1 pence in early London trading. The decline in sales was driven by food-price deflation, Coupe said in a statement, adding that he expects the market to remain competitive.
Recent permanent price cuts have included reducing a bag of three large onions to 80 pence from £1, Sainsbury's said. It has also reduced a 335-gram pack of broccoli to 40 pence from 50 pence, and a frozen deep-pan pizza to 90 pence from £1.30.
Coupe’s job has been made harder by sterling’s drop following the Brexit vote, which will push up purchasing costs.
“We expect the market to remain competitive, and the effect of the devaluation of sterling remains unclear,” Coupe said in the statement. Brexit hasn’t impacted consumer spending, the CEO said on a call with reporters.
Same-store sales at Argos rose 2.3% in the quarter, the company said.
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