Sainsbury results: the reaction
Edouard Aubin and Francois Halconruy, Morgan Stanley Research
“On the negative, Sainsbury now talks about persisting pricing activity in the market and revises its full-year like-for-like guidance down. What was previously ‘skirmishes’ has evolved into ‘significant pricing activity’ and deflation in many food areas, which Sainsbury expects to persist for the foreseeable future. We believe the market was largely expecting this revision.
“On the positive, Sainsbury gives a reassuring message around the exit rate. In the [press] release, Sainsbury mentions not recognising the steady decline implied by the last sets of 4-week Kantar data suggesting the exit rate could be close to the average for the quarter. Elsewhere, convenience continues to grow at high double-digit rates, while the slowdown in online growth (+7% year-on-year) looks attributable to heavy customer acquisition programmes at competitors.
Clive Black and Darren Shirley, Shore Capital
“Sainsbury’s sales performance suggests to us that processes that have embroiled Tesco for some time now are starting to impact its smaller rival. So, Sainsbury is growing its convenience business (like-for-like sales up by 2% and total sales 17% ahead in the second quarter … and its online grocery activity (by plus 7%). Sainsbury’s commentary on current activity and so profitability in the UK online grocery market is a cautionary tale with respect to Ocado to our minds.
“However, Sainsbury is experiencing substantial weakness in its core food activity in superstores, a format under considerable pressure from the new channels as well as the currently rampant discounters. Management guided to a fall in core chain superstores of about 3–4% but with non-food growing apace, it implies even weaker food sales.
“Indeed, Sainsbury is now under-performing the UK grocery scene, something we haven't seen very often over the last decade, to be frank, at a time when the market leader is facing its most challenging time in living memory and when Morrisons has not yet turned the corner either, following the latter’s strategic volte face in March 2014 to re-prioritise price-value. We find this industry scenario to be especially worrying ahead of a probable margin reset by Tesco UK, which needs to be material and soon to our minds.”
Mike Coupe, ceo Sainsbury
“In the second quarter, our performance has been impacted by the accelerated pace of change in the grocery market, including significant pricing activity and food price deflation in many areas. These conditions are likely to persist for the foreseeable future and we now expect our like-for-like sales in the second half of the year to be similar to the first half.”
David Gray, retail analyst Planet Retail
“Sainsbury is also bruised by the effects of a price skirmish that is progressively heightening in intensity, into which it is fast being drawn through the Brand Match scheme. In the long term, industry-wide margins are likely to come under even more pressure.
“No gaping holes in the company accounts and a slightly less diabolical performance than Tesco are hardly achievements to shout about. Sainsbury will need to pull out all the stops over the next few months if it is to escape the worst of the malaise set to descend upon the UK’s big four grocers.”
Julie Palmer, retail expert at Begbies Traynor
“As expected, the supermarket price war has taken its toll on Sainsbury whose fantastic run of growth over nine years under former ceo Justin King has come to an abrupt end. Performance over the last quarter has been very weak and the pressure is now on Mike Coupe to reassure shareholders that they are not sleepwalking into a Tesco-like crisis. The announcement to cut 5p off fuel and simplifying it’s ‘Brand Match’ offer will do little to mask the disappointing figures in today’s statement.
“With the all-important Christmas trading season approaching, it will be interesting to see if this strategy of lowering prices on thousands of its products will be enough to deter competition from the likes of Aldi and Lidl who seem to have the most attractive offering to shoppers looking for value.”
George Scott, senior consultant at Conlumino
“This represents a better than expected update, though Sainsbury’s like-for-like decline is indicative of extremely difficult competitive conditions for the big four grocers. Conlumino’s long-term view remains that its ‘values’ makes it different to its immediate peers and will allow it elevate from the sea of promotions prevalent among the big four as they try to compete more effectively amid share gains from the discounters as well as more premium players. However, with a blip in sales now evolving into a more sustained tumble, there are questions around whether Sainsbury is allowing the value gap to open up too widely.
“The increasing price consciousness and waning loyalty of UK consumers is fostering structural change in the grocery sector, with the big four seeing increasing scores of their traditional customer bases defect to discounters Aldi and Lidl. The resultant onslaught of promotions to fight back, combined with easing of some commodity price inflation, means that the value of what goes into shopper baskets is being squeezed.”
More on Sainsbury results is available here.
