Sainsbury's sales slip again in second quarter

The supermarket group, which is now also a major general merchandise retailer after completing the acquisition of Home Retail Group's Argos on 2 September, revealed that total retail sales fell 0.4% in the 16 weeks to 24 September, with like-for-like retail sales including VAT but excluding fuel down 1.1%.

Convenience sales grew by 7%, with nine new stores opened, while online grocery sales grew 8%.

Sainsbury's, which so far has opened 15 Argos Digital concession shops within its own stores, said group general merchandise growth in the second quarter was up 4.0%, which implied the grocery performance had weakened.

Although group sales fell during the quarter, chief executive Mike Coupe said progress continued to be made against strategy as like-for-like transaction numbers had been grown across all channels and total volumes as well, with the fall in LFL sales driven by food price deflation.

Looking forward, Coupe said: "We expect the market to remain competitive and the effect of the devaluation of sterling remains unclear.

"However, Sainsbury's is well positioned to navigate the changing marketplace and we are confident that our strategy will enable us to continue to outperform our major peers."

But as part of plans to accelerate the 'multi-product, multi-channel' strategy, Coupe said there would be a further 30 in-store Argos concessions trading before Christmas 2016 and 200 new 'digital collection points' opened within stores by the end of the year.

Analyst opinion

Having for two years defied the economic gravity of Britain’s supermarket shootout, industry analyst John Ibbotson of Retail Vision said Sainsbury's "has come down to earth with a bump", with only rudderless Asda losing sales at a faster rate.

“The speed with which the tables have turned says much about the intensity of the competition in the market," he said. "A year ago Sainsbury’s was congratulating itself for retaining its middle-class client base while the German discounters decimated their rivals at Tesco and Morrisons.

“Now Tesco and Morrisons have staunched their losses and are fighting back with aggressive price cuts and some fundamental reforms to their structure. By contrast the Sainsbury’s response - the abolition of multi-buy promotions and the introduction of simpler pricing - looks distinctly underwhelming in the current brutal market conditions."

With general merchandise having risen 4%, broker Shore Capital calculated superstore sales were 1.5-2% lower, with grocery sales weaker again and clothing sales caught up in the industrywide malaise.

On a same-store basis "the core Sainsbury grocery business is quite materially underperforming Morrison and most probably Tesco UK", analyst Clive Black said.

He added that with trading tough and set to remain so, "we feel the need to be reasonably cautious on our profit expectations for Sainsbury’s core business in the near-term", also highlighting that the gradual recovery of Tesco UK "as a cause for real concern for Sainsbury in terms of the scope for greater direct competitor attrition, something the business has not had to content with since the later noughties".

Laith Khalaf at Hargreaves Lansdown suggested that while the Argos deal was a bold step it could boost market share: "The prospect of customers coming in store to pick up their Christmas gift orders from Argos and doing some seasonal shopping at the same time looks quite promising for the supermarket."

However, he highlighted the challenges the whole industry continues to face: "However the falling pound will start to take a toll as currency hedges and supply agreements fall out of the equation, and Sainsbury’s and its peers will have to stock their shelves at higher prices. Given the highly competitive price environment, it’s going to be a tough choice between passing on that additional cost to customers, and taking a hit to margins."