Trouble in store for Sainsbury's as sales go into reverse in bargain-conscious UK

Sarah Butler and Sean Farrell
19 March 2014
The Guardian
Sainsbury’s is last of UK’s big four grocers to see sales go into reverse as shoppers search for bargains at discounters
Over the last three months sales in Sainsbury’s stores open for more than a year tumbled by just over 3% – ending a 36-quarter run of growth.
Nine years of constantly growing sales have come to an abrupt end at Sainsbury’s in another sign of the huge changes in Britain’s shopping habits.
The change in fortunes revealed on Tuesday makes Sainsbury’s the last of the UK’s big four grocers to see sales at established stores go into reverse as a result of shoppers searching for bargains at discounters such as Aldi and Lidl, switching to cheaper own-label goods, moving online – or simply buying less.
Over the last three months sales in Sainsbury’s stores open for more than a year tumbled by just over 3% – ending a 36-quarter run of growth.
The decline was worse than expected and the news marred one of the last outings for the grocer’s high profile chief executive, Justin King, who engineered a turnaround of the group.
One leading retail analyst, David McCarthy at HSBC, said: “This sector is in structural decline, with no end in sight.”
All the major grocers have now been affected by the rise of the discounters, as even middle-class shoppers have started shopping around for bargains.
Sainsburys
At the same time more shoppers are buying online and avoiding big superstores in favour of smaller local shops. Analysts at another City group, Bernstein, estimated that sales at Sainsbury’s biggest stores were down 5%. If the impact of rising food prices is included the declines are even larger.
Concerns about the quality of food in response to the horsemeat scandal last year have also sent more shoppers towards more upmarket grocers such as Waitrose and Marks & Spencer.
Aldi’s sales are currently rising by more than 30% a year and Lidl’s by nearly 16% according to the latest industry data from research group Kantar Worldpanel.
Last week, Morrisons provoked panic on the stock market when it said the biggest change in shopping habits in 50 years was under way and warned that its profits would halve as it spent £1bn on price cuts and product improvements over the next three years in a bid to halt the exodus of customers.
Morrisons has suffered as consumers turn away from large out-of-town outlets to online purchases and convenience stores
More than £2bn was wiped off the value of Tesco, Sainsbury’s and Morrisons, which are all listed on the London Stock Exchange, on fears of a price war.
On Tuesday, one of the City’s leading brokers, Shore Capital, advised investors to sell Tesco shares for the first time since 1996, as it slashed nearly 15% off the level of profit it expected the UK’s biggest grocer to turn in.
It fears that Tesco needs to spend more than the £200m it has so far promised for price cuts. King, who steps down in July, admitted that the Sainsbury’s performance had been disappointing but predicted it would not see a downturn in profit this year.
He said the declines at the other big grocers were the result of the type of long-term sales declines that Sainsbury’s had not seen.
According to King, half of the price reductions announced with great fanfare by rivals in the last few weeks have gone into cutting the price of three basics – eggs, milk and bread.
He said Sainsbury’s had already responded to those cuts, as it had done many times before, in the usual “cut and thrust” of the market.
He appeared to suggest rivals’ talk of price cuts was a phoney war, but McCarthy said: “This does not look phoney to us.”
King added later: “We are not dismissive of the possibility that the [price cuts in the market] could turn into something more, but we are well equipped if that’s going to be the case.”
He insisted that the fall in sales at Sainsbury was due to lower food price inflation and one-off factors, such as bad weather, this year’s later timing of Easter and Mother’s Day and comparisons against very strong trading a year ago when Sainsbury’s benefited from a clean sheet over the horsemeat scandal.
King dismissed the claim by the Morrisons boss, Dalton Philips, that the supermarket business was seeing its biggest change since they first appeared on the high streets in the 1950s.
The market was tougher during the recession of the early 1990s when discounters such as Kwik Save had more of the market and unemployment was higher, he said.
“We can’t speculate on where the market will go but we remain confident that our long track record of outperformance of the market will be maintained,” he said. He said Sainsbury’s was determined to maintain its position by highlighting foods with “values” such as free range eggs and Fairtrade bananas as well as competitive prices.