Sainsbury’s boss warns of even more growth for Aldi and Lidl in 2017

As Sainsbury’s annual profits fall 8.2%, the big four supermarket reveals how it plans to fight off the German discounters.

Sainsbury’s says its pre-tax profits slid by 8.2% to £503m in the year to 11 March, as it blamed “reduced consumer confidence” for the decline.

Although group sales rose 12.7% to £29.1bn, partly thanks to the acquisition of Argos last year, sales across Sainsbury’s core supermarkets fell by 2% for the year. And in a statement, Sainsbury’s blamed a decline in general merchandise and clothing sales on “reduced consumer confidence and a marked slowdown in real pay growth.”

Over recent months, Sainsbury’s, which traditionally prioritises premium food, has suffered due to the rise of food inflation and this resulting in more shoppers seeking out bargains. Speaking on an investor call its CEO Mike Coupe warned that the discounter’s market share would soon hit 15% of the UK grocery market.

“Discounters will get to 15% in this market, it’s inevitable. [To fight them] we are investing massively in online and convenience, two growth areas, and the Argos acquisition makes us a lot more attractive to mobile-savvy consumers,” he explained. The discounters currently account for 11.9% of the market compared to 16.1% for Sainsbury’s.

The supermarket chain wants 250 Argos stores in its supermarkets by March 2019 – up from 59 at present – and Coupe said sales within Argos concessions at Sainsbury’s stores open more than a year continue to grow by between 20% and 30%. This has helped lift grocery sales in their host supermarkets by 1% to 2%.

Coupe also used the call to defend the £1.4bn acquisition of the Argos chain, which has dramatically increased Sainsbury’s footprint in general merchandise. Despite a “difficult backdrop”, he said Sainsbury’s was “well set up” and had increased its share of the non-food market amid a challenging environment.

He also said it was “inevitable” that more of Sainsbury’s focus would stray away from food over the coming years. “We can achieve a lot from brand collaborations that give us something different,” Coupe added, pointing to the “success” of the 10 Patisserie Valerie concessions Sainsbury’s currently hosts within its larger stores.

Record growth

According to Kantar Worldpanel, the overall grocery market grew by 3.7% – the fastest rate since September 2013 and worth almost £1 billion in additional sales to the grocery sector – over the 12 weeks ending 23 April, as Brits spent a whopping £325m on Easter Eggs.

This boost meant that all 10 major retailers, including Sainsbury’s – which recorded sales growth of 1.7%; its highest rate since June 2014 – were all simultaneously in growth for the first time in three-and-a-half years.

Fraser McKevitt, head of retail and consumer insight at Kantar Worldpanel, used the latest numbers to downplay previous talk of record food inflation due to Brexit. He concluded: “While prices do look set to rise further, the current inflation rate of 2.6% is still below the average level experienced by shoppers between 2010 and 2014.”