Trading 'toughest in 30 years' – Sainsbury's boss
Thursday 16 June 2011
Sainsbury's had robust performances from its clothing and homewares ranges and convenience stores to thank for an improvement in its first-quarter sales, although these were lower than City forecasts.
The UK's third-biggest grocer was boosted by the warm weather and royal wedding over the period, but Justin King, Sainsbury's chief executive, warned that trading conditions were the toughest he had seen in nearly three decades in the grocery sector.
Mr King's comments came a day after Tesco blamed a 4.8 per cent fall in quarterly non-food sales, such as electricals, clothing and entertainment categories, for a 0.1 per cent decline in UK like-for-like sales.
But Mr King said Sainsbury's – whose general merchandise offer is dwarfed by Tesco's – was "outperforming the market on non-food by some margin", citing the "success" of its Tu clothing range and home-related products. Its home accessories enjoyed record sales for a non-Christmas week leading up to Mother's Day, while clothing sales benefited from a television-advertising campaign and the warm weather.
But Mr King said: "The backdrop for non-food has never been more challenging", as "prudent" customers limit their discretionary spending in the wake of high energy bills and petrol prices, with prices at the pumps hitting weekly household budgets by £15 in the past two years.
Sainsbury's general merchandise business, which has benefited from its store-extension programme, continued to grow ahead of its food division in the last quarter, albeit at a slower rate than previously. For the 12 weeks to 11 June, Sainsbury's grew its like-for-like sales by 1.9 per cent, excluding fuel. This was ahead of the 1 per cent growth in the fourth quarter but behind City forecasts of 2.1 per cent. Accounting for the boost to its sales from store extensions and the VAT rise in January, Sainsbury's sales showed no growth during the period.
Lifted by weekly transactions up by 5 per cent to 22 million, total sales at Sainsbury's rose by 7.3 per cent, although fuel accounted for 3 per cent.
Sales at its 440 Sainsbury's Local convenience stores, were between "two to three times" ahead of its other 530 supermarkets, said Mr King, as customers cut back on car journeys and engage in top-up shopping.
In the run-up to the royal wedding, Sainsbury's sold 300 miles of bunting, 159,000 flags, and 49,000 mugs. Sainsbury's Basics range, which generates annual sales of £500m, has become the second-biggest value range with a 22.3 per cent market share, according to Kantar Worldpanel, for the 12 weeks to 15 May. While it has leapfrogged Asda's Smart Price range, Basics still lags behind Tesco. Mr King said that Sainsbury's premium brand, Taste the Difference, also grew sales, showing that customer are still prepared to treat themselves.
On consumer spending, Mr King said that confidence continues to "bump along the bottom" at a similar level to the past three years. He said: "I have been doing grocery for 28 years and it is the toughest it has ever been."
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