Planet Retail sees this morning’s profit decline as indicative of challenges facing the wider food industry. With food price deflation now entrenched and discount rivals growing their market share by the day, Sainsbury’s faced a simple choice – invest in price or lose out to cut-price rivals.
On Sainsbury’s H1 results, David Gray, Retail Analyst at Planet Retail, commented:
“As expected, this morning Sainsbury’s reported a sharp drop in underlying pre-tax profits as price reduction investments begin to bite. With food price deflation now entrenched, and discounters growing market share, mainstream operators like Sainsbury’s must face up to the harsh realities – invest in lower prices or lose out to cut-price rivals. With the foundations of a UK food retail margin reset now laid, attention is very much on how retailers intend to rebuild their respective businesses.
“From a top line trading point of view, at least, Sainsbury’s appears to be on an improving trend with Q2 like-for-like declines narrowing those at Q1. This ‘very modest’ improvement can be attributed in part to robust convenience division growth combined with initiatives to adapt big-box concepts to a new retail reality.
“Sainsbury’s has been very transparent regarding adapting its formats to the changing retail paradigm – trialling a mini c-store concept and six future-format outlets. The former provides a potential - if somewhat uncertain - growth opportunity, especially considering the previous Fresh Kitchen debacle. The latter may drive footfall into larger stores through layout changes, enhanced checkout options and by adding third party concessions.
“Add to this the fact that Sainsbury’s estate is structurally advantaged with fewer very large stores, and the outlook for sales performance going forward may not be so bleak after all. Profits, however, are another matter entirely.
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David is available for further comment and can be contacted on +44 (0)20 7715 6132 or via e-mail at David.Gray@planetretail.net
Robyn Ashman, Marketing Director
Tel: +44 (0) 20 7715 6021; E-mail: Robyn.Ashman@Planetretail.net