Sainsbury’s is claiming to have outperformed many of its rivals over the crucial festive period, trumpeting its value proposition and product innovation for helping steal volume sales from rivals.
The supermarket, the UK’s second largest by share, reported grocery sales increased 9.3% for the quarter ending 6 January, which it attributes to taking volume from its rivals.
It also reported like for like sales increase of 8.6% for the four-week Christmas period.
Citing Kantar Worldpanel data, the supermarket says it was the only “full-choice” supermarket – those that provide clothing, fuel and other merchandise beyond groceries – to register volume growth.
The “limited-choice” discounters Aldi and Lidl – which primarily stock groceries – (see “Grocery Volume Change” chart, below), also recorded grocery volume growth for the quarter, while Tesco, Asda and Morrisons recorded negative volume sales.
Separately, Nielsen data (see “Net Volume Switching” chart, below) demonstrates that, over the course of its third quarter, Sainsbury’s volume growth was driven by primarily taking volume from rivals Asda, Tesco and Aldi, in that order.
Speaking to analysts following the publication of the results J Sainsbury plc chief executive Simon Roberts explained its consumers responded positively to its investment in value across the grocery range. In April last year the supermarket revealed it had invested £560m into keeping prices low over the previous two years. He said: “As I’ve always said, our job of work was to get our value position into a competitive position. And that’s happened more and more through the last year.
“We don’t want to be the cheapest in the market, we want to be the best value on the things that customers really expect from us. And so when we look at the year ahead, we think we’ve done the lion’s share of our value investment,” he said.
YouGov’s BrandIndex, which measure consumer perception and sentiment around a variety of criteria related to brands, finds that over the four weeks to 9 January, Sainsbury’s ranked joint sixth for value perception among consumers, tied with Morrisons with a net value score of 16. It trails Aldi (53), Lidl (49), Tesco (26), Asda (25), and Iceland (21).
The supermarket reported that overall its own brand ranges performed strongly with overall sales growth of 10% year on year – and its entry price product range was the fastest growing sub-brand.
He argued that the brand is “really winning the basket” through the strength of its pricing. Roberts notes that Taste the Difference was the fastest-growing product tier over the quarter, representing a 13% YOY growth in sales for the range. He says that the premium range now has the biggest premium own label participation of all the full choice grocers in the UK.
Roberts also says that customers responded positively to its Nectar Prices loyalty scheme over the Christmas period: “It really gave customers reasons to shop with us and you can see in our volume performance… how much we’ve outperformed the market. Our volume is approaching mid single digit growth there and Nectar Price is really helping to drive that performance for us.”
Pricing and promotion
Speaking on the same call Sainsbury’s chief financial officer Bláthnaid Bergin added how important the supermarket’s historic investment in pricing has been for the success in the third quarter: “We have done the lion’s share of the heavy lifting on price, but we will remain sharp on pricing so [we will] absolutely keep an eye on for pricing is, where value is versus our competitors.”
Overall Roberts believes that Sainsbury’s has put the work in around its ‘Food First’ strategy – both in terms of pricing and its ranges. He says that the market is behaving ‘rationally’, with consumers seeking value above other considerations, which will continue into 2024: “Value is always front and centre as we break into a new year.”
The supermarket also reported online sales in line with the other Big Four supermarkets, which Roberts attributed to investment in ensuring the quality of experience with delivery was up to consumer expectations.
While the supermarket chain’s grocery sales performed strongly, it also reported falling volume sales across its clothing and general merchandise (GM) categories. Clothing sales were down 1.9% over the quarter, and 6% down over the Christmas period. General merchandise sales (excluding the closure of Argos stores in the Republic of Ireland) stood at 1.5% for the quarter and -1.3% over the Christmas period.
Analyst Charlie Huggins, manager of the quality shares portfolio at Wealth Club, says the weaker clothing and GM sales are representative of consumers remaining cautious despite falling inflation: “The supermarket sector remains intensely competitive and the UK consumer is far from being out of the woods, with the weaker clothing and General Merchandise sales pointing to an element of caution in consumer behaviour.”
Roberts says that the clothing market in particular will remain “heavily promotional” and exposed to weather and other external factors: “We [said] at the interims in November that we would need to adapt to a more promotional market. We’ve done that. We also said that we have work to do to improve our ranges. We’re working on that and you can see an improvement in the quarter”.
As a result of the strong performance the supermarket is reiterating its full year guidance on profit, as a result of strong grocery performance offsetting a weaker performance from Argos “in what was a very promotional general merchandise market and against strong Christmas performance last year”.