Sainsbury profits as customers go back to Basics

Sales of its cheap and cheerful range help Sainsbury's buck the gloom with a 4.5% sales hike.

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Last Updated: 06 Nov 2012

Sainsbury’s continues to make relatively serene progress through the downturn: the supermarket chain said today that like-for-like sales were up 4.5% in the year to March 21, pushing total revenues to £20.3bn. Sainsbury’s said its low-end Basics range had done particularly well, as cash-strapped punters shopped around for bargains – which is also helping to dispel its reputation as an expensive store (at least in comparison to its rivals). So apart from the fact that pre-tax profits slid 3%, thanks largely to losses on its property portfolio, CEO Justin King had plenty to celebrate again today.

A fall in profits is never good, of course, and it certainly seems to have taken a couple of percent off the share price this morning. But Sainsbury’s was keen to stress that its financial health is a lot ruder than this figure suggests – if you strip out the various valuation changes, underlying profits were actually up 11% to £543m, while total sales (including new store space and petrol) jumped nearly 6%. These are pretty respectable numbers. And there were some real successes: clothing sales are up (40% of its customers are now buying from the TU range), online revenues surged by over 25%, and notably, sales of its cheap and cheerful Basics range rose substantially – they now account for 3% of all sales, up from 2% last year.

King insists that this is not just a case of shoppers trading down. Apparently half of those who bought Basics also bought its premium ‘Taste the Difference’ products at the same time – suggesting that we’re just getting choosier about what to splash out on. Besides, King isn’t really complaining - and not just because of the £5m bonus he's pocketed as a result of these figures. Sainsbury's own-brand goods now total 40% of sales (which is good for margins), and the Basics range is helping to persuade shoppers that Sainsbury’s isn’t such a rip-off after all. (‘We’ve said for a while that our price perception lagged our reality’, he moaned to the FT today.) This will also help him ward off the threat of low-cost retailers like Aldi, which is supposedly nibbling away at its market share.

King spoke cautiously of the ‘challenging’ environment today, but Sainsbury’s is pressing ahead with some fairly bullish expansion plans: after increasing retail space by about 4% last year, it’s expecting to add another 5% this year. After buying a bunch of unwanted stores from the Co-operative Group, it will open another 50 convenience stores this year, while expanding various other sites. That means more sales growth, and more British jobs - good news for Sainsbury’s, and good news for the economy as a whole.


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