Is Sainsbury’s slowdown a harbinger for sector?

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Sainsbury’s reported a slowdown in sales during the fourth quarter, which caused its shares to fall 6% almost immediately. It also suggests that if Sainsbury’s, the top performing supermarket, is seeing a slowdown, we can expect worse reports from the rest of the retail sector in the coming months.

Its like for like sales for the 10 weeks to 19 March increased 1% – while still on the right side of growth, it’s a drop from what Sainsbury’s has reported in every other quarter this year.

Sainsbury’s, like John Lewis and its sister grocer Waitrose, has been one of retail’s darlings through the recession.

It has reported consistently strong performance and while it still trails Tesco and Asda in sales, it is making strides towards becoming the second biggest UK retailer.

It has played along with the inescapable price promotions and discounting demonstrated by its rivals but has managed to keep away from the public slanging match that Asda and Tesco have built into their media rhetoric.

Instead it has employed clever, value adding marketing strategies that deliver the “universal appeal” Sainsbury’s is striving for. Campaigns like its menu card initiative to show families how they can make a healthy meal from scratch every day of the working week for £20 are priceless.

Sainsbury’s has been slowly notching up gains increasing its share every month since March 2009 while Tesco and Asda’s market shares have been widely flat or in decline.

The latest Kantar Worldpanel figures show Sainsbury’s holding 16.5% of the market. Asda holds 16.9% and Tesco is way out in front with 30.3%.

CEO Justin King makes the familiar statement that the consumer environment will remain tough, thanks to fuel price inflation, uncertain employment prospects and government spending cuts. but believes that Sainsbury’s is still outperforming the market and is well positioned for further growth in the next 12 months.

This may well be the case but it does suggest that if Sainsbury’s, which has consistently performed well, is reporting slipping sales, what does the next quarter hold for rivals that haven’t been doing so well?

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