Sainsbury’s boss denies focus on price cuts is denting quality perception

Sainsbury’s boss Mike Coupe insists that the supermarket’s quality message is not getting lost despite an industry-wide focus on price.

For the year to 12 March, Sainsbury’s saw its sales fall 1.1% to £25.8bn as underlying profits slid 14% to £587m, slightly better than analysts predicted. Although admitting that consumers now have more money in their pocket, Sainsbury’s chief executive Mike Coupe said it was being spent primarily in sectors such as leisure and on cars, rather than in supermarkets.

He claimed Sainsbury’s prices are now 4% lower than two years ago, adding that is a “reflection of a fiercely competitive market, that will remain so for the foreseeable future”.

Speaking on a press call this morning (4 May), Coupe said he was not concerned that the ongoing price war – which saw rival Morrisons cut its prices by a further 20% this week – would damage Sainsbury’s established reputation for offering higher quality groceries than its big four rivals. He claimed the price difference between the big four supermarkets is now “virtually zero”.

Coupe told Marketing Week: “No, it definitely is not [ruining our reputation for quality]. We are confident in not only the quality of our products but our shops too and I’d argue that the numbers show our quality for service and availability has improved significantly.

“There is an ongoing opportunity to talk more about quality through advertising. Certainly, the ‘Little Twists’ campaign is where we invest a lot of our marketing expenditure. Our goal is to talk overtly about quality and how we offer it in a day-to-day way.

“We invested in improving the quality of 750 products last year and will improve 3,000 more in the year ahead. But you have to do both as it is a challenging market so our prices will continue to be competitive too and we will make targeted price cuts when appropriate. We’ve seen transactional volume growth over course of the year so that shows customers are certainly responding well to the brand and the changes we are making.”

Standing out from rivals

Sainsbury’s expects to completely phase out multibuy promotions by the end of August while it has also discontinued its Brand Match scheme in a bid to offer more transparent pricing. Its biggest rival Tesco hit back at the latter move, announcing it would accept Sainsbury’s customers now invalid Brand Match vouchers at its stores.

And when asked by Marketing Week if he was concerned this tactic would impact brand loyalty, Coupe responded: “It doesn’t concern me as we wouldn’t have ended Brand Match if it wasn’t the right thing to do. Our customers told us they wanted simpler, everyday pricing. It isn’t just about Brand Match, it is about reducing all promotional activity and multibuys and investing it all back in underlying pricing. It is the right thing to do. And that is reflected in our transactional and volume growth.”

Sainsbury’s held its market share at 16.5% in the 12 weeks to 24 April, according to the latest data from Kantar Worldpanel, as its major rivals Tesco, Asda and Morrisons all lost share. However, Sainsbury’s sales were down 0.4% during the period, its first fall this year and the first time all of the big four have their sales drop for a year.

Coupe blamed the wet weather for the decline and insisted it “isn’t reflective of a step backwards.” He explained: “We’ve had a lot of peculiarities with the timing of Easter and the fact we had a lot of sun last year but this year it was cold and wet. It will be a tough quarter to predict as there’s so many weather swings right now.”

Confidence in Argos

Argos, which Sainsbury’s is buying for £1.4bn, recently revealed a 36% dive in profits to £83.1m in the year to 27 February. The decline comes at a difficult time for the high street, with established British retailers such as BHS and Austin Reed collapsing into administration.

However, Coupe insisted its acquisition of Argos is “still the right move” despite the disappointing figures.

Pointing to the demise of BHS, he added: “It shows retail doesn’t stand still. You must challenge yourself and move with the times. The rationale for Argos is customers can shop wherever or whenever they want – online, digital and mobile. We think it is the sweet spot of where customers are moving to.

“If you stand still you get overtaken by competitive dynamics, it’s that simple.”

Mike Coupe, CEO, Sainsbury’s

Sainsbury’s CFO John Rogers backed up Coupe’s comments and said the Home Retail Group acquisition would result in a “unique proposition.”

He concluded: “Ultimately, 50% of Argos sales are online, yet 80% of orders get fulfilled via a store so the physical space is still compelling despite what’s happening to others on the high street. We still believe that when we look at combining two estates this provides us with a unique proposition.”

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