The supermarket says sales from stores open for a year or more fell 2.8 per cent in the 16 weeks to 27 September – the company’s second fiscal quarter. Like for like sales had dipped 1.1 per cent in the previous quarter.
The supermarket unveiled a shift in its marketing strategy last week with more emphasis placed on price.
Sainsbury’s had previously sat on the sidelines of the price war being fought by big 4 rivals Tesco, Asda and Morrisons in response to the challenge posed by discounters Aldi and Lidl but introduced thousands of “lower, regular prices” in stores and refocused its Brand Match scheme to compare exclusively on Asda, seen as the big 4 leader on price and a relative success with sales growing in recent quarters.
Mike Coupe, the recently installed chief executive, placed great stock in the campaign. In a statement accompanying the sales update he says: “As part of our commitment to help our customers Live Well for Less, we have announced a change to the way we set our prices. Customers tell us they find supermarket prices and promotions confusing. We have responded by lowering base prices on thousands of lines within the food business and smplifying Brand Match to make it clear that we match Asda’s prices on brands – even when they are on promotion.”
Coupe went on to blame the capricious nature of the market and the increasingly promiscuous nature of shoppers for the sales drop as well as the hit to value growth caused by the promotion heavy environment.
“The market remains dynamic and fiercely competitive. The long-running trend of more frequent, convenient shopping has accelerated, resulting in smaller basket sizes. An increase in price investment and short-term competitor promotional activity, combined with favourable commodity markets, has resulted in deflation in many areas of our food business. “
Analysts have reacted critically to the sales update. Dr Clive Black, analyst with Shore Capital, described the update as “very poor when set against the sector and where the group has been over recent years” – Sainsbury’s run of 36 consecutive quarters of growth came to an end in March.
George Scott, senior consultant at Conlumino, says Sainsbury’s move “down the premium ladder” in cutting prices is key to ensuring it does not lose ground to rivals on value.
“It now faces a litmus test in the coming months in seeing whether customers react positively to this new tact.”
It should, however, not ignore promotion of its differentiators – quality and values, he adds. “It will need to continue to monitor and act on price, while balancing the damage on its sensitive operation margin and its quality image.”
The results come in a bad week for Sainsbury’s, which yesterday (30 September) hit the headlines after a poster meant for a London store’s staff room that encouraged staff to try and get customers to spend 50p more each shop was accidently put in the shop window.
A spokeswoman for the supermarket says the poster was “mistakenly put on display” but that such challenges to staff are commonplace. “We often use posters to make store targets fun and achievable for our colleagues,” she adds.