Is turbulence down the aisle for Sainsbury’s?
SHOPPING trends are starting to calm down, after trading peaked last year. So some kind of slowdown in sales growth was to be expected at Sainsbury’s. Halfyear revenue, not including fuel sales, was flat compared with last year’s heightened levels.
But the massively increased costs associated with Covid-19 haven’t repeated. That meant that, although sales growth was sluggish, underlying operating profits rose eight per cent.
Moving forward, Sainsbury’s will be saddled with higher workforce and logistics costs. These will be made more difficult because of supply chain issues and labour shortages.
But there are some Sainsbury’sspecific problems, too. Sainsbury’s owns Argos, and it’s been working to turn its fortunes around.
The pandemic sped up their Argos store closure and integration programme. The costs involved are huge and Argos is more exposed to the economy taking a turn and people having less spare money.
Groceries remain Sainsbury’s bread and butter, though the sector is more crowded than ever.
Aldi and Lidl offer cheaper alternatives, then there are more upmarket offerings like Waitrose, M&S Food and Ocado. The sale of Asda and Morrisons, and likely rejuvenation of those businesses, means we could be looking at another all-out price war.
The group’s already been discounting to boost sales. A huge increase in online capacity has helped, but the extra infrastructure comes with extra costs. Margins are under pressure as a result, and they were already a bit thin.
That makes the work Sainsbury’s is doing on its proposition very important.
Sainsbury’s clothing sales are faring well. The balance sheet is also in better condition. That gives Sainsbury’s some breathing room.
Overall, there is work still to be done, and lacklustre full-year guidance suggests there could be turbulence ahead. We have questions about how successfully the group can turn its plans into sustained profit growth.
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