Sainsbury may be starting ‘to lag in supermarket price war’

Sainsbury reported falling second quarter sales

Sainsbury may be lagging behind in the supermarket price war, according to one analyst, after the retailer posted its second consecutive quarter of falling sales, which the retailer blamed on a dip in food prices.

Total retail sales fell by 0.4%, excluding fuel, during second-quarter trading during the 16 weeks to  September 24.

Like-for-like retail sales fell by 1.1%.

Sainsbury’s group chief executive Mike Coupe said: “We continue to make progress against our strategy and, while like-for-like sales were down 1.1% (excluding fuel), driven by food price deflation, we delivered like-for-like transaction growth across all channels and total volume growth.

“This shows that customers are consistently choosing Sainsbury's for the choice, quality, value and customer service we offer.” 

But Connor Campbell, senior market analyst with financial specialist www.spreadex.com, detecting a weakening of Sainbury’s competitive position.

‘Another disappointing update’

“It looks like Sainsbury’s might be starting to lag behind in the supermarket price war,” said Campbell. “While Morrisons, traditionally the weakest of the big four, managed a third consecutive quarter of like-for-like sales earlier in the month and, according to Kanter Worldpanel, Tesco is at a two-year sales high, Sainsbury’s revealed yet another disappointing update this Wednesday.”

The Sainsbury’s boss said the retailer’s ambition remained to help customers live well for less.

“We have made further investment in everyday low prices and continue to improve the quality of our products,” said Coupe.

“Our general merchandise and clothing offer is popular with customers and the acquisition of Home Retail Group will accelerate our multi-product, multi-channel strategy. We will open 200 new digital collection points by the end of the year and already have 15 Argos Digital stores open in Sainsbury's stores so customers can shop 90,000 products whenever and wherever they want.”

Sainsbury predicted the UK grocery market will remain competitive and the effect of the devaluation of sterling remained unclear. But the retailer was well positioned to navigate the changing marketplace, it claimed.

“We are confident that our strategy will enable us to continue to outperform our major peers,” said Coupe.

Retail specialist Begbies Traynor was unimpressed by the results. “Yet again, Sainsbury’s has failed to turn around its weak sales performance, in stark contrast to the recent momentum seen by two of its largest competitors, WM Morrisons and Tesco, whose recovery seems to be gathering pace,” said the firm’s retail expert Julie Palmer.

“It remains too early to tell what material benefits Sainsbury will garner from the integration of Argos, after it completed the acquisition of Home Retail Group earlier this month.” But current sales figures looked promising, she said.

The £1.4bn deal

Over the next six months, investors will be keeping a close eye on the supermarket chain to see if the £1.4bn deal can deliver the significant cost savings and diversified shopping experience claimed by the retailer.

“Meanwhile, the supermarkets’ ongoing battle for market share looks set to intensify still further, with Aldi reporting plans to steal yet more customers from its larger rivals with a revamp of its stores and ambitions to have a presence on every high street,” added Palmer.

“However, in today’s increasingly competitive retail environment, Sainsbury will be hoping that its growing non–food retail offering and same-day delivery trial will prove successful, providing a much needed edge over the competition.”

Meanwhile, discount store Aldi posted record results this week, which analysts claimed would be good news for their food suppliers.

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