One in four Sainsbury’s stores ‘underperforming’

Sainsbury’s chief executive Mike Coupe admitted that one in four of his stores is underperforming yesterday as he mothballed 40 planned openings and focused on tightening costs.

Shoppers will benefit from a £150m investment in price cuts on many essential lines, but shareholders will suffer a dividend cut this year.

Mr Coupe also suggested that the dominance of discounters Aldi and Lidl was “grossly exaggerated” and expects them to dominate no more than 15 per cent of the grocery market.

The revelations come as the UK’s third-biggest supermarket slipped into the red following a massive £628m property writedown, as the chief executive unveiled his vision for the future of the business.

However, first he revealed that sales fell 2.1 per cent on a like-for-like basis in the six months to the end of September, with total sales down 0.1 per cent at £12.7bn. Mr Coupe also suggested that like for like sales could suffer for some time.

Sainsbury’s recorded a £290m pre-tax loss for the six months to the end of September, although underlying profits were down 6.3 per cent to £375m before the writedowns are taken into account.

The boss, who replaced Justin King this year, conducted a full-scale review of the business and discovered that 25 per cent of stores were either the wrong size or in the wrong location.

He said more non-food products will be fitted into extra space, including its Tu clothing range, along with kitchenware. Other struggling stores will be filled with concessions, including the roll-out of more Jessops camera stores.

However, Mr Coupe denied suggestions that the problems with Sainsbury’s were similar to those of Tesco (which filled empty space with coffee shops and restaurants), saying the underperforming space was only minimal by comparison.

Mr Coupe also vowed to strip millions from the company, including a £150m price cut this year and £500m of operational cost reductions, which are likely to include job cuts and squeezing suppliers, while its capital expenditure budget for new stores and upgrades will be halved to around £500m a year.

Convenience stores and online customers have led to the decline of out-of-town superstores. However, Mr Coupe insisted the larger sites still had a part to play in the business.

“We’ve seen a lot of coverage about the death of the superstore,” he said. “I think that’s grossly over-exaggerated. The majority are still shopping in big out-of-town stores, but that will be where the business is squeezed.”

Many customers are now making more trips to stores, doing top-up shopping and buying food for the same day, rather than making weekly shops – sentiments which are echoed by rival retailers.

Mr Coupe also suggested he was unconcerned by the threat posed by Tesco’s new chief executive, Dave Lewis. He would only say: “We are aware of someone limbering up in the changing room.”

Focus will continue on building more convenience stores, with 100 planned this year, while large stores will be scaled back to just eight in the next three years, including four re-builds.

Online will also grow with Sainsbury’s first “dark store” being built in London that will be closed to the public and just used for fulfilling web orders.

On its decision to cut the dividend, which will be revealed later this year, the company said it was the right decision to free up cash for investments, and meant a mooted rights issue would not be needed.

There was some good news from Sainsbury’s as its bank, which it bought outright, turned a £32m profit in the period, while a successful trial of clothes on the website means the Tu range will be offered online across the country.