Like-for-like sales at Sainsbury’s and Argos were down 1.1% in the third quarter as a decision to offer less promotions around Black Friday, as well as “cautious” consumer spending, hit results.
A combination of cautious consumer spending and a reduction in promotional activity around Black Friday resulted in Sainsbury’s reporting a 1.1% decline in like-for-like sales for the 15 weeks ending 5 January.
The second of the major supermarkets to post its festive trading results this week, Sainsbury’s said while trading in the run-up to Christmas was “strong”, this was offset by a challenging period for general merchandise. Sales in GM were down 2.3%, with toys in particular suffering a double-digit decline, during a period of unseasonably warm weather and ongoing political uncertainty.
Clothing sales were also down 0.2%. And while food inflation continued to fall, dropping to 1.8% for the final three months of 2018, grocery sales growth at Sainsbury’s sat well below that at 0.4%. Like-for-like sales at Argos stores within Sainsbury’s, however, were up 10%.
“There has been a general down-trading and people are being very careful with their money, we can see that reflected in our grocery business where we saw people down-trading and being more careful in the items they bought, which meant the average item price was lower than we expected,” Sainsbury’s boss Mike Coupe said during a press call this morning (9 January).
“There is definitely caution out there and as we continue to go through the next period of uncertainty I suspect this will be reflected in the way customers behave.”
Sainsbury’s made a decision to reduce Black Friday activity this year, a move that impacted sales at Argos in particular. But Coupe said Sainsbury’s is having to tread a very fine line between boosting sales and maintaining profits in a very challenging market.
“We are in a market where there are a lot of retailers in distress, which means there’s a lot of discounted stock out there. Equally we are in business to make money so we have to be very thoughtful about where we put our promotional spending,” he said.
“The reality is, Black Friday has got carried away with itself over last few years so we’ve been more cautious in how we approach that but we’ve also been very sensible in the way we’ve managed our stock, our pricing, and we’ve come out of Christmas pretty clean as a result of that.”
Coupe acknowledged the continued growth of the German discounters Aldi and Lidl and the impact this is having on the business.
Over the festive period, two-thirds of Christmas shoppers visited Aldi and Lidl, culminating in their highest ever combined Christmas market share of 12.8%, according to Kantar Worldpanel figures. Sainsbury’s market share, meanwhile, was down 0.3 percentage points to 16.2%.
Sainsbury’s is hoping to tackle the rise of the discounters with its proposed merger with Asda. If the Competition and Markets Authority (CMA) approves the deal, with a decision expected by the beginning of February, it will create a new supermarket leader with an estimated 31% share of the grocery sector. And analysts believe the merger will be key to Sainsbury’s success going forward amid “pressure” in its core mid-to-premium market.
“For the rest of 2019, Sainsbury’s will look to swiftly move past these poor results and focus on its upcoming CMA-approval-pending mega-merger with ASDA,” says Thomas Brereton, Retail Analyst at GlobalData.
“Given the current pressure on the mid-to-premium market, CEO Mike Coupe is gambling that the CMA will approve it; if it refuses or requires too many disposals, the result will be Sainsbury’s drifting almost aimlessly during the year as competitors continue to grow.”
Morrisons was the first of the major grocers to reveal its Christmas sales figures on Tuesday, with Tesco, Waitrose and Marks & Spencer set to announce theirs on Thursday.