Sainsbury's gets aggressive after latest sales boost

Flushed by its recent success, Sainsbury is raising £445m to fund an aggressive expansion plan.

Last Updated: 06 Nov 2012

Supermarket chain J Sainsbury enjoyed a 7.8% rise in like-for-like UK sales during the first quarter of its financial year – another sign of its resurgence under CEO Justin King. In fact, it’s feeling so bullish that it’s decided to raise £445m from the City to speed up its expansion plans – apparently the plan is to buy up lots of property while it’s cheap, allowing it to boost store space by 15% in the next two years. It appears that Sainsbury’s is rather enjoying the recession…

The near-8% rise in sales (once you strip out the impact of the VAT cut) was a new record for Sainsbury’s, and even better than the City expected. King said customers were ‘spending more cautiously’, but he seems to have got the offering right: sales of its cheap-and-cheerful Basics range jumped a whopping 50%, its TU clothing range enjoyed its best ever quarter, and its online grocery service was up 20%. He also suggested that customers hadn’t discarded their ethical concerns in the recession, with its RSPCA-certified ‘Freedom Foods’ range quadrupling sales. This helped Sainsbury's to boost customer numbers to 18.5m a week, which is by no means poultry.

Now King is keen to grow the business ‘further and faster’. He announced today that Sainsbury will raise £445m from City investors (about half by selling new shares, and the rest by selling bonds), boosting his investment war-chest to about £2bn. With commercial property looking cheap after the recent price falls, he wants to add an extra 2.5m sq ft of retail space between now and March 2011. Some of this will be on new sites, both for superstores and convenience stores (for instance, it’s just agreed to buy nine more ex-Somerfield sites from the Co-op), while about 40% of the total will be earmarked for expanding current sites. Perhaps one of the supermarket's staff came up with the idea on that Channel 4 programme (/advertorial) of theirs?

It’s a relatively aggressive plan from Sainsbury, and not without risk – there’s always a chance that some of the customers it’s picked up recently won’t stick around when things pick up a bit, or that it might not do so well if it expands into areas of the country where it has less of a presence (like the North of England). On the other hand, the supermarket had clearly lost its way in the pre-King days, and it’s got plenty of catching up to do on the likes of Tesco and Asda. With King having now delivered 18 consecutive quarters of like-for-like sales growth, we’re inclined to give him the benefit of the doubt.

In today's bulletin:

UK unemployment hits 12-year high
Sainsbury's gets aggressive after latest sales boost
British Airways boss Walsh ask staff to work for free
'Bloated' MySpace to lay off 400 staff
Editor's blog: The abuse of power

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