Time for Sainsbury's to go on a diet?

The supermarket reported its first quarterly sales fall in nine years and is refusing to play ball in the impending price war.

by Rachel Savage
Last Updated: 21 Mar 2014

- Read MT’s interview with Sainsbury’s chief exec Justin King

Everyone was expecting Sainsbury’s to report a fall in sales today – and lo and behold it did – but that doesn’t stop a set of hard figures being an opportunity for a post-mortem on the state of British supermarkets.

The grocer’s like-for-like sales fell 3.1% excluding fuel in the 10 weeks to March 15, the first quarterly sales decline in nine years. That meant revenue ticked up just 0.2% on a like-for-like basis in the last year.

Chief exec Justin King blamed the timing of Easter and Mother’s Day and ‘unseasonable weather’ for the ‘tough comparatives’. He also pointed out that Sainsbury’s had a particularly good quarter last year as customers galloped to the supermarket when other shops were found to be passing horsemeat off as beef.

‘The market is now growing at its slowest rate since 2005, with falling food inflation in particular benefiting customers,’ said King, who is vacating the chief exec throne in July (not before speaking at MT Live).

2005 was a full three years before the economy fell off a cliff, though, indicating that our weekly grocery shop might not be so closely tied to GDP growth as you might expect.

As BBC business editor Robert Peston put it, ‘What is very striking is that we are not taking advantage of lower prices at the supermarkets to buy more from them, or buy more extravagantly… Britain's consumer-led recovery remains fragile.’

Sainsbury’s did point out it maintained its market share at 17% in the 12 weeks to March 2, whereas Morrisons, Tesco and Asda all fell back year-on-year (see chart). However, middle class fave Waitrose and German uber-discounters Aldi and Lidl have nabbed 3.5% of the market off the competition in last three years, according to researchers Kantar Worldpanel.

The big four retailers are squaring up for a price war in response to the upstart discounters: Tesco committed £200m a year to cutting prices last month and Morrisons announced a £1bn restructuring last week after big losses. Sainsbury’s is standing firm for now, despite all supermarkets shares taking a hammering (its relatively low margins means it has less space to slim down), but it may have to sharpen its knives if the bargains battle escalates.

King may not leave on quite such a high as he’d hoped, but it looks like he’s still doing the sensible thing by emulating former Tesco boss Sir Terry Leahy and getting out before the good ship Sainsbury’s springs a serious leak. At least investors still love him

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