Sainsbury Loses Ground to Tesco, Discounters in Tough Market
J Sainsbury Plc is struggling to keep up with supermarket rivals and discounters in a U.K. grocery market under pressure from a Brexit-induced fall in the pound.
Data from researcher Kantar Worldpanel showed Wednesday that as well as lagging the growth of cut-price grocers Aldi and Lidl, Sainsbury’s food sales are also trailing rivals Tesco Plc and Wm Morrison Supermarkets Plc. Amid tough competition, all of the U.K.’s major grocers have struggled to pass along higher costs stemming from a fall in sterling since the U.K. voted to leave the European Union.
Sainsbury is “having to run harder to stand still in the supermarket business,” Clive Black, an analyst at Shore Capital, said by phone.
While Sainsbury said the impact of Brexit remains uncertain, it’s helping suppliers improve their productivity and scrapping night shifts in hundreds of supermarkets to reduce costs. The retailer, which previously announced a goal of cutting expenses by 1 billion pounds ($1.3 billion) over six years, said it’s on track to deliver half of that reduction by the end of its current fiscal year.
“Complexity has crept into our business over the years,” Chief Financial Officer Kevin O’Byrne said in an interview with Bloomberg Television. “We are trying to cut costs everywhere without impacting customer service.”
The shares fell as much as 4.4 percent in London trading after Sainsbury said underlying pretax profit for the 12 months through March 11 fell 1 percent to 581 million pounds. It was the third straight year of declines in pretax earnings, but was in line with the 580 million-pound average estimate of nine analysts surveyed by Bloomberg.
Sainsbury was shielded somewhat by its acquisition of general-merchandise chain Argos last year, which initially drew investor skepticism. Without a 77 million-pound contribution from Argos, the company’s group profit would have fallen 16 percent. The grocer has added 59 Argos concessions in its stores.
“What began as a bolt-on has turned into a lifeboat,” John Ibbotson, director of consultancy Retail Vision, said by email.