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Sainsbury's results

Sainsbury’s Q1 Results

Total Retail Sales -0.6% (ex.fuel)
Compared to the same period last year
Retail like-for-like -2.1% (ex.fuel)
LFL sales flat compared to same period last year
(Results for the 12 weeks to 6 June 2015)

Our comments
This update marks a sixth consecutive quarter of LFL decline for Sainsbury’s. It is not alone among the Big Four in posting such performances and is far from the worst recent performer among its peers, as both low food inflation and the outperformance by the discounters, continue to have an adverse impact. For example, Asda reported a even worse LFL decline (-3.9%) for its Q1 to April 2015. However, these results emphasise the massive task facing Sainsbury’s as it attempts to regain the initiative against the backdrop of intensifying competition.

Sainsburys’ update focuses on its growth in transaction volumes. Here, the grocer has benefitted from investment in simplifying its promotional offer, which has helped clarify its positioning. Linked to this, investment has been directed towards own-brand, with several new launches around produce and specialty bread during Q1. Sainsbury’s also continues to strive to widen its reach and improve convenience, opening ten convenience stores during the period, as well as introducing 20 grocery click & collect sites and a larger number of online delivery slots.

Elsewhere, clothing sales grew over 5%, with its online offer due to be rolled out nationwide this summer. Three Argos digital stores opened within Sainsbury’s stores, with the partnership on track to reach 10 stores by the end of H1, as Sainsbury’s bids to improve both the instore shopping experience and make more effective use of space.

These all represent positive steps for Sainsbury’s, but there is still a sense that it is playing catch up its core grocery market, particularly in relation to price. Though it has announced plans to invest a further £150m in lowering prices over its 2015/16 financial year, we believe that its approach is less convincing than its rivals. Most notably, Asda announced plans to invest £300m in prices this year over 2,500 customer favourites. Tesco is pursuing annual price investments of £200m, including cutting prices on a raft of well known branded products by up to 25%. Moreover, Morrisons this week announced plans to reduce prices on around 200 items by up to a third, which followed the commitment the grocer made back in March to £1bn in prices.

Sainsbury’s provides far less detail on its pricing commitments and seems to be cautious in promising headline grabbing statistics on reductions. In particular, on the face of it, Sainsburys’ main peers seem to be gearing cuts more strategically towards essentials. Time will tell whether Sainsbury’s’ twin focus on pricing investment and continued investment both into improving quality around own-label and its convenience credentials will help it to win the intensfying battle for baskets among the Big Four.

Source: Conlumino Viewpoint 10th June 2015

June 2015

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