“The first six joint venture Netto supermarkets are set to open on the November 6 2014, including one adjacent to a Sainsbury’s supermarket at Heaton Park in Manchester,” Shore Capital analyst Darren Shirley confirmed.
Reports suggest the other five stores will open in Sheffield, Leeds, Hull, Doncaster and Ormskirk. The trial will include 15 stores initially.
However, evaluating the costs and success of the trial would take time and, meanwhile, Sainsbury was “arguably between a rock and a hard place” in terms of retail strategy, said Shirley.
“Sainsbury is in a real quandary from a current trading performance to our minds in 2014. A retailer that has moderately stood apart on values, range, quality specifications, service and store standards, seems to be losing out now to retailers with lower prices.
“If it is losing out on price it may have to … cut prices. However, Sainsbury has not displayed a culture of competing hard on prices compared to its competitors. As often as not, it has ostracised core customers with price cuts because it is seen to be going down market …
‘Concern’
“Indeed, we harbour concern about Sainsbury’s capability to compete at a strategic level going more head-to-head on price, a demesne where many of its competitors are much more comfortable.”
As the supermarket geared up to announce its strategic review on November 12, one obvious route was for it to move more towards a high quality, upmarket proposition, Shirley said.
But he added: “Doing so though may be more comfortable for Sainsbury’s management, although it is not the stuff of the mass market and so we are less certain than we have been for some time that Sainsbury can gain in this quadrant whilst stopping the leakage from the value based players.”
Cutting back its Nectar card discount scheme, and narrowing its Brand Match strategy to compare itself solely with Asda would enable Sainsbury to cut costs and channel cash elsewhere, he said.
“Sainsbury may clarify its trading strategy further, possibly announcing additional simplification, price cuts and reductions in promotions whilst seeking to extol choice, specification and service,” Shirley predicted.
‘Larger production runs’
“Such work may also involve a simplification of Sainsbury’s [own-label] offer to engineer larger production runs to deliver cost savings to better compete.”
The retailer needed more resources to compete on price and non-price matters in stores, argued Shirley, so he expected it to engage in strategic cost-cutting.
“Sainsbury may announce a root and brand re-appraisal of its cost base to streamline and simplify the business beyond the current c£120–130M expectation for [the full year] 2015.
“The process may involve substantial restructuring costs with a view to providing strategic resources in order to better compete in-store. Change may also impact the supply chain with a reduction in duplication of processes alongside steps to identify competitive advantage and make commercial life more challenging for its competitors.”