Retail Viewpoint – Sainsbury’s
Cost pressures cause fall in profits for Sainsbury’s.
Sainsbury’s concludes arguably the most eventful year in its history with a mixed set of results, which were buoyed by the injection of sales from its acquisition of Home Retail Group, but hampered by disappointing l-f-l sales as consumers look for cheaper food & grocery options. The faltering growth of real wages against significant inflationary headwinds, particularly in food, will be a cause of concern for Sainsbury’s, already one of the more expensive UK grocers.
Online and convenience sales continue to be drivers of growth for Sainsbury’s, rising over 8% and 6% respectively as time-short consumers look for the most convenient ways to complete the food shop. The growth of Sainsbury’s grocery app, launched almost 12 months ago, highlights the benefit of investment in smartphone platforms, with over 10% of online orders coming through the app. With the Sainsbury’s store portfolio skewed towards the convenience sector (around 60% of all stores), it will be rightly concerned about the proposed Tesco-Booker merger as the potential for Tesco to utilise its expansive supply chains will enable it to provide stores with products at more competitive prices.
While Sainsbury’s is performing well in its general merchandising and Tu clothing businesses, with sales up over 2% and over 4% respectively, it is important that it continues to focus on food. Grocery rivals Tesco and Morrisons have experienced l-f-l food sales upticks of 1.3% and 1.7% respectively, which makes Sainsbury’s falling l-f-ls indicate that it may be distracted by its integration of Argos.
Increased investment in its own-brand offer, which now accounts for around 50% of food sales, will enable the retailer to compete more effectively against its competitors while also helping stem the depletion of retail operating margins, which fell to 2.4% from 2.7% for the year.
Source: GlobalData Viewpoints 3 May 2017