Sainsbury’s to cut stores and dividend

Graham Ruddick
Telegraph UK
The supermarket’s sales are falling for the first time in decade as Britain’s “big four” grocery retailers fight shifts in shopping habits and the rise of the discounters Aldi and Lidl
J Sainsbury is to scrap a giant programme of store openings and slash its dividend, as part of a dramatic overhaul drawn up to fight falling sales.
The supermarket giant will this week unveil the results of a strategic review, which is expected to reveal that Sainsbury’s is reining in costs in an effort to save cash and shore up its balance sheet.
The measures are intended to allow Sainsbury’s new chief executive, Mike Coupe, to invest in lowering prices as well as expanding the company’s online, convenience store and clothing businesses, which are performing well.
Sainsbury’s sales are falling for the first time in decade as Britain’s “big four” grocery retailers fight shifts in shopping habits and the rise of the discounters Aldi and Lidl.
Mr Coupe replaced Justin King in July and told the City last month that he was conducting a strategic review. He will present the results of the review alongside the company’s interim results, which the City expects to show a 12.5pc fall in underlying pre-tax profits to £350m.
There has been speculation in the City that Sainsbury’s could launch a rights issue to fund a new strategy, but the company is understood to have ruled this out. Instead, it is likely to protect its balance sheet against falling profits by cutting the dividend, potentially by as much as a third.
It is understood that Mr Coupe will also slash capital expenditure and Sainsbury’s new store openings. Sales in large out-of-town supermarkets are falling and Sainsbury’s wants to focus on opening smaller convenience stores.
John Kershaw, analyst at Exane BNP Paribas, said that Sainsbury’s might cut the amount of space it opens by a third. He expected Sainsbury’s to open less than 500,000 sq ft of new selling space in the next financial year, down from 750,000 sq ft this year.
If the company mothballs sites earmarked for new supermarkets then it might be forced to writedown the value of land on its balance sheet.
Clive Black, an analyst at Shore Capital, said Sainsbury’s might cut capital expenditure from just below £900m this year to between £550m and £600m in future.
Mr Black said: “We expect Sainsbury’s to join Asda and Morrisons in becoming more in touch with its customers through a re-allocation of resources from a lower cost base with constrained capital outflows and potentially lower dividend flows.
“For now, as is the case at Tesco, we suspect customers must take precedent over shareholders and other stakeholders in the food system.”
Allan Leighton, the former boss of Asda, said the main problem facing Britain’s grocery retailers was that they have too many stores.
Mr Leighton, who led a turnaround of Asda in the 1990s alongside Archie Norman, said: “In the end, they have too many stores. I think there is a structural thing, but there are also too many stores.”
Tesco’s market share peaked in 2007, but since then it has expanded its shop space by the same area as the whole of Morrisons today.
Mr Leighton also questioned the product range in the big four supermarkets, saying it had become too large and made it “harder to shop”.
He was speaking in an interview as chairman of Matalan, which is growing its out-of-town business but has also opened its first high street store in Cardiff.
Mr Leighton dismissed comments from the supermarket industry that shoppers were turning against out-of-town shopping. He added: “Out of town is very strong.”