Why Sainsbury's struggles are a sign of the times, rather than a brand in decline

Sainsbury's struggles are a sign of the times, not a brand in decline
Sainsbury's struggles are a sign of the times, not a brand in decline

Sainsbury's is reading its own path and holding its own, despite today's announced drop in like-for-like sales, writes retail specialist Kate Jones, director of Mash Strategy.

Are we seeing the beginning of a change in the fortunes of our major grocers as the market is grows at its slowest rate since 2005?

Deflating food prices are taking their toll on supermarket giant Sainsbury’s. In the 10 weeks to 15 March, like-for-like sales, which strip out trading at new stores, fell 3.1% excluding fuel. This is the first time it has happened for nine years and a big shock for the business and outgoing chief Justin King.

This drop is blamed not just on falling food prices but the timing of Easter (much later versus last year) and also the boost in sales experienced last year at the height of the horsemeat scandal, dramatically affecting competitors such as Tesco.

Tough times

Mr King, who has by all accounts had a sterling 10 years at the helm, commented that the figures were disappointing but needed to be "put into context".

Sainsbury’s bold decision to go against the grain and not follow suit into the price war may raise an eyebrow or two in the city.

In reality, Sainsbury’s has held market share despite a dip in sales and is still expecting to outperform its peers this year. But times are tough and consumers need the offers on food to help them with their weekly shop at a back-to-basics level, not to tempt them into spending more or trading up. The money just isn’t there.

A stark reminder of that fact is that all four of the major players have now revealed poor sales in recent months, while the likes of Aldi and Lidl appear to be making hay, with Aldi posting a whopping 34% growth in sales versus 2013.

The big question is, what is going to happen next? After a big tumble last week and a profit warning, Morrisons has entered a full on price war along with Tesco and Asda, pledging investment of £1bn over the next three years, its sights squarely on the discounters.

Price war

Sainsbury’s bold decision to go against the grain and not follow suit into the price war may raise an eyebrow or two in the city, but the business is concentrating on differentiating its offer and not becoming part of the amorphous traded mass.

Sainsbury’s can take comfort that consistency of this strategic approach has paid dividends – its own-brand sales are ahead of branded, performance of general merchandise is strong, with menswear up 23% and ladies wear in expansion after 11 strong collections. On top of this the ever expanding convenience offer is up 15% and now reporting a million transactions a day.

The pressure on consumers is not expected to lift, and despite an overall rosier feeling with the UK economy in general, King commented that "we expect the outlook for customers to continue to be challenging for the coming year".

Only time will tell how all this will pan out as prices continue to crash and who knows what the impact of price war might have on Sainsbury’s, but for now, despite this setback, the brand is treading its own path and holding its own. Long may it continue.

Discussion

Before commenting please read our rules for commenting on articles.

If you see a comment you find offensive, you can flag it as inappropriate. In the top right-hand corner of an individual comment, you will see 'flag as inappropriate'. Clicking this prompts us to review the comment. For further information see our rules for commenting on articles.

comments powered by Disqus
Brand Republic Jobs

subscribe now