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Sainsbury's sales fall again but glimmers of hope cheer investors Sainsbury's sales fall again, but glimmers of hope cheer investors
(about 5 hours later)
Sainsbury’s has revealed its sixth quarter of falling sales, but chief executive Mike Coupe insisted there were signs of improvement on the horizon as shoppers start to increase the number of purchased items. Sainsbury’s has revealed its sixth quarter of falling sales, but chief executive Mike Coupe insisted that there were signs of improvement on the horizon as shoppers start to buy more items. Sales at the supermarket’s established stores fell 2.1% in the last three months amid a continuing price war which has dragged down grocery prices by 2.5% year on year.
Sales at the supermarket’s established stores fell 2.1% in the last three months amid a continuing price war which has dragged down grocery prices by 2.5% year-on-year. But despite the new decline, shares in Sainsbury’s rose more than 4.5% to 260p as Coupe said shoppers’ average spend per visit had not declined for the first time in five years. The number of shoppers and the volume of goods sold in its stores had risen for the second quarter in a row.
But despite the new decline, shares in Sainsbury’s rose more than 4.5% to 260p as Coupe said shoppers’ average spend per visit had not declined – for the first time in five years. The number of shoppers and the volume of goods sold in its stores had risen for the second quarter in a row. John Rogers, Sainsbury’s finance director, said the turnaround was the result of cutting prices to compete with the discounters, Aldi and Lidl, which have been stealing the traditional grocers’ customers.
John Rogers, Sainsbury’s finance director, said the turnaround was the result of cutting prices to compete with the discounters, Aldi and Lidl, which have been stealing the customers of the traditional grocers. “As the pricing differential versus the discounters has been reduced, some customers who have historically decided to split their shop or shop around and do a top-up shop [elsewhere] have found it more economical and efficient to do all their shopping under one roof,” he said. He added that on items where it had lowered prices, Sainsbury’s had seen an average 6% rise in the volume of goods sold.
“As the pricing differential versus the discounters has been reduced some customers who have historically decided to split their shop or shop around and do a top-up shop [elsewhere] have found it more economical and efficient to do all their shopping under one roof,” he said. Tesco, Asda and Morrisons have also been cutting prices, with shares in Tesco and Morrisons also boosted by suggestions that shoppers might be returning to big, weekly shops in large stores. Tesco climbed 4.6% to 211.5p with Morrisons up 5% at 179p, even though Sainsbury’s also said convenience store sales had risen by 10% on last year’s levels. One analyst said the shares had also benefited from some “short-sellers” – investors who take a bet that a share price will fall – unwinding their positions after weeks of falling supermarket share prices.
He added that on items where it had lowered prices, Sainsbury’s had seen an average 6% rise in the volume of goods sold. Coupe said he had the resources to cut prices further to “match competitors” and that reductions could continue into next year. But he said the market was looking better than when he laid out his strategic plan in November. He also said he was hopeful that Sainsbury’s would benefit from a rise in disposable household incomes within the next six to 12 months. He said people now had on average £16 a week more in their pockets after all bills were paid: “As soon as customers have more money, they tend to eat out more, but eventually they start trading up with the supermarkets.”
Tesco, Asda and Morrisons have also been cutting price with shares in Tesco and Morrisons also boosted by suggestions that shoppers might be returning to big-weekly shops in large stores. Tesco climbed 4.6% to 211.5p with Morrisons up 5% at 179p, even though Sainsbury’s also said convenience store sales had soared by 10% on last year’s levels. Analysts said Sainsbury’s profit margins remained under pressure amid heavy price competition in the market. But one suggested the trends seen at Sainsbury’s could mark a turning point. “We are, in our view, close to the bottom of the cycle in grocery retail,” wrote Mike Dennis at Cantor Fitzgerald in a note.
One analyst said the shares had also benefited from some “short-sellers” – investors who take a bet that a share price will fall – unwinding their positions after weeks of falling supermarket share prices. A separate study by credit ratings agency Moody’s, however, predicted thesupermarket price war is set to continue for the next 12 to 18 months. Moody’s said the market share of the Big Four – Tesco, Morrisons, Asda and Sainsbury’s – would fall by 4% by 2020, while Aldi and Lidl’s combined share would reach 12%-15% by 2020. At 12%, the two would be bigger than Morrisons.
Coupe said he had the resources to cut prices further to “match competitors” and that reductions could continue into next year. But he said the market was looking better than when he laid out his strategic plan in November.
Coupe said he was hopeful that Sainsbury’s would benefit from a rise in disposable household incomes within the next six to 12 months. He said people now had on average £16 a week more in their pockets after all bills were paid: “As soon as customers have more money they tend to eat out more, but eventually they start trading up with the supermarkets.”
Analysts said Sainsbury’s profit margins remained under pressure amid heavy price competition in the market. But one analyst suggested the trends seen at Sainsbury’s could mark a turning point. “We are, in our view, close to the bottom of the cycle in grocery retail,” wrote Mike Dennis at Cantor Fitzgerald in a note.
A separate study by credit ratings agency Moody’s, however, predicted thesupermarket price war is set to continue for the next 12 to 18 months.
Moody’s said the market share of the Big Four – Tesco, Morrisons, Asda and Sainsbury’s – would fall by 4% by 2020 while Aldi and Lidl’s combined share would reach 12%-15% by 2020. At 12% the two would be bigger than Morrisons.
The agency added that profit margins among the big grocers are unlikely to recover until 2016-17 due to further rounds of price cuts and sales falls.The agency added that profit margins among the big grocers are unlikely to recover until 2016-17 due to further rounds of price cuts and sales falls.
Coupe said remained cautious about the outlook: “There are encouraging signs but let’s not get too carried away with ourselves until we see if some of the trends we’ve talked about today continue.” Coupe said remained cautious about the outlook: “There are encouraging signs, but let’s not get too carried away with ourselves until we see if some of the trends we’ve talked about today continue.”
He added: “Trading conditions are still being impacted by strong levels of food deflation and a highly competitive pricing backdrop … Virtually every week someone announces something on prices” He added: “Trading conditions are still being impacted by strong levels of food deflation and a highly competitive pricing backdrop … Virtually every week someone announces something on prices.”
Morrisons became the latest grocer to unveil a new round of price cuts on Monday, reducing the cost of 200 items. Sainsbury’s has pledged to spend £150m on price cuts this year.Morrisons became the latest grocer to unveil a new round of price cuts on Monday, reducing the cost of 200 items. Sainsbury’s has pledged to spend £150m on price cuts this year.
Sainsbury’s reported its first annual loss in a decade in March after writing down the value of its stores and property assets. To save money, it is cutting 800 jobs in its stores. Morrisons, Asda and Tesco have also been laying off thousands of store managers. Coupe denied that the job cuts and changes to shift patterns would affect customer service.Sainsbury’s reported its first annual loss in a decade in March after writing down the value of its stores and property assets. To save money, it is cutting 800 jobs in its stores. Morrisons, Asda and Tesco have also been laying off thousands of store managers. Coupe denied that the job cuts and changes to shift patterns would affect customer service.