Sainsbury's sales fall in Justin King's last trading update

Graham Ruddick
11 Jun 2014
Supermarket chain suffers second consecutive fall in sales after nine years of unbroken growth
Justin King has insisted he is leaving J Sainsbury in good shape despite the supermarket group suffering a second consecutive drop in like-for-like sales in his final trading update as chief executive.
Sainsbury’s said that like-for-like sales fell 1.1pc excluding fuel in the 12 weeks to June 7. Including fuel, like-for-like sales dropped by 2.4pc.
Britain’s third largest supermarket group has now reported two consecutive quarters of sales declines. Prior to this drop in sales, the company enjoyed nine years of unbroken sales growth under Mr King.
However, the departing chief executive said: “I would prefer sales to be growing, but I don’t think I am leaving on a low. I think if my tenure were to be judged on one quarter that would be a little sad.”
During his decade in charge, Mr King has transformed Sainsbury’s from a retailer riddled with low staff morale, empty shelves and falling sales into the best performer of the “big four” supermarkets, which also includes Tesco, Asda and Morrisons.
On Wednesday, shares in Sainsbury’s rose by 4.6, or 1.4pc, to 334.40p as investors breathed a sigh of relief that the figures were not worse.
Food sales in the UK are growing at the slowest pace for a decade according to industry data. The country’s largest supermarket chains are under pressure from shoppers switching spending from out-of-town stores to convenience stores, the internet, and the discounters Aldi and Lidl.
They are also suffering from the impact of price deflation, as deliberate price cuts and slowing commodity prices drags down the value of sales.
Mr King insisted that Sainsbury’s will stand “toe to toe” with rivals in the “price skirmish” taking place in the industry.
Mike Coupe, the commercial director who is replacing Mr King after the company’s annual meeting on July 9, insisted: “Our relative price position [compared to rivals] has never been stronger.”
Mr King said he expects customer spending to “remain cautious” but insisted that Sainsbury’s “clear strategy and differentiated offer” will mean it continues to outperform its closest rivals.
The Sainsbury’s boss said he was confident that customers were not just seeking the cheapest price and will “stay true to their rivals”.
He drew comparisons with customer behaviour after the collapse of Lehman Brothers, when critics of Sainsbury’s claimed it would struggle as shoppers deserted the grocer for cheaper options. In fact, Sainsbury’s grew sales ahead of rivals as customers were attracted by its unique proposition, such as the Taste the Difference own-brand range.
Although Sainsbury’s has reported a drop in sales in the last three months, bitter rival Tesco last week revealed far worse figures. Tesco said like-for-like sales had fallen 4pc, its worst quarterly sales figures in 40 years.
There were bright spots for Sainsbury’s in the trading update. The company said the sales of its Taste the Difference own-brand range grew nearly 10pc, while clothing brand Tu enjoyed double-digit like-for-like growth.
The changing dynamics in the industry were reflected by sales in Sainsbury’s Local convenience stores growing 18pc and online sales more than 10pc. Sainsbury’s now has more convenience stores than supermarkets, with 200 convenience stores in London alone.
During the quarter, Sainsbury’s opened 27 new convenience stores, one supermarket extension, and refurbished three supermarkets.
The expansion in space meant that Sainsbury’s could still report a 1pc rise in total sales excluding fuel, despite like-for-like sales declining.
Bruno Monteyne, analyst at Bernstein, said Sainsbury’s management appeared to be quietly confident. He said: “We think they are very wary of being overly optimistic and don’t want to sell the skin of the bear before it has been shot.”
However, David McCarthy at HSBC, said: “Sainsbury’s may be feeling pleased it is beating its two quoted rivals in LFL sales, in that it is losing sales at a slower rate, but it is still losing LFL sales.”