It says a lot about the supermarket sector that Sainsbury’s reporting a 1.9 per cent fall in sales at stores open at least a year is being viewed as a good result.
With prices under intense pressure it’s a tough ask for any supermarket group to report more money coming in through the doors, if you exclude the impact of new store openings.
The interesting thing about Sainsbury’s is the company’s comments on volumes. They’re apparently starting to tick up. So are the number of transactions.
In other words, more people are buying more products from Sainsbury’s outlets. This is despite signs of a revival at Tesco and the continuing growth of Aldi and Lidl.
What’s going on? Sainsbury’s has had little choice but to bite the bullet and cut prices so that the gap between what it charges for hundreds of core products and what the above two European discounters charge is narrower.
The City might not like it, but the days where a supermarket chain could bump along on a 5 per cent operating margin are well and truly over. These days 3 per cent is an excellent result.
Nonetheless, the supermarket’s relative resilience is interesting and while its shareholders are going to have to accept less from here on out – which is good news for customers – there are some reasons for optimism.
Its rivals have struggled with getting their stores right, but Sainsbury’s formula has been working. While the best Tesco will beat the worst Sainsbury’s, the numbers seem to indicate that the latter offers the more pleasant customer experience.
Few people enjoy grocery shopping. It’s a chore at the best of times. But real incomes are finally rising, and if that happy situation proves sustainable and the economy continues to hum along (admittedly these are big ifs) then it might be that more people will be willing to pay a small premium for making that chore less onerous.
Sainsbury cannot afford to be complacent when it comes to pricing. The market won’t wear it if that premium gets too high. Moreover, a FTSE 100 chief executive I met recently told me they didn’t feel Aldi and Lidl should be described as discounters at all. “They’re just good retailers,” was his view, and there is something to be said for that: good retailers that will respond to the competition.
But the modern Sainsbury’s is a good retailer too. Its non-food offer is increasingly compelling, its bank helps to keep customers close, and click and collect is there too.
If anything, these results are perhaps most worrying for Morrisons, which is losing pots of money and looks to be caught in a squeeze.
Its new chief executive, David Potts, has started work, promising to listen. Perhaps he’ll hear an answer to the group’s problems in the conversations he’ll be having over the next few weeks. He’d better hope he does.Reuse content