British supermarket giant Sainsbury’s has told staff and shareholders that their consumer outlook remains uncertain, after it saw a drop in sales following the failed merger with Asda.
The company announced that in the 16 weeks leading up to the 29th June, Sainsbury’s total retail sales fell by 1.2%. Like-for-like sales during this period fell by 1.6%.
Mike Coupe, Sainsbury’s Chief Executive, said: “We continue to adapt our business to changing shopping habits and made good progress in a challenging market. We reduced prices on over 1,000 every day food and grocery products and improved our relative performance.
“Our premium Taste the Difference ranges are growing market share and we continue to improve customer service and availability. In a tough trading environment, we gained market share in key General Merchandise categories and in Clothing, where we are now the UK’s fifth largest retailer by volume.”
Following the announcement, shares in the company fell by 1.6-2%.
Sainsbury’s is still dealing with the aftermath of its failed merger with Asda, which was blocked by the CMA in April.
However, the company has announced that it will continue to look to improve its service in its stores.
Coupe continued: “We will invest in 400 supermarkets this year, including adding an enhanced beauty offer in 100 stores. We are accelerating investment in technology: 148 supermarkets now have SmartShop self-scan, 206 Argos stores offer Pay@Browse and we upgraded 29 more Argos stores to digital formats, all helping to make shopping with us quicker and easier.
“In May, we celebrated Sainsbury’s 150th birthday. Our focus on giving customers high-quality products at good value remains as true today as it was 150 years ago.”
Sophie Lund-Yates, Equity Analyst at Hargreaves Lansdown
The latest dip in sales at Sainsbury isn’t a complete surprise, things have been difficult for a while, and last year made for a slightly tougher comparison. With disappointing weather and no Royal Wedding to heat up activity at the tills, it was going to be even more of a challenge to deliver growth. Looking ahead, the group said conditions are set to remain uncertain.
The supermarket sector is still seeing competitive pressure, meaning the likes of Sainsbury are being forced to push prices down across core products. So while last year’s strong performance makes this trading update harder reading, the real challenges are coming from the wider industry.
Sainsbury is still reeling from the breakdown of its plans to merge with Asda, and is trying to re-energise the business in new ways. Plans to cut costs and reduce debt are sensible, as are plans to improve the store estate – 400 shops will have been treated to a facelift by the end of the year.
The supermarket’s proven adept at catering to changing consumer habits. In particular Sainsbury has done well to capitalise on the boom in vegetarian and vegan lifestyles, and can now boast almost a third of the market share.
With conditions in the supermarket sector remaining tough though, investors will want more than meat-free ribs and kebabs being deployed to keep the competition at bay.