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Sainsbury's profits drop but online keeps growing

Sainsbury's has reported a 17.9% fall in pre-tax profits to £308 million for its 28 weeks to 26 September. The grocer also reported a 2% fall in underlying group sales to £13.6 billion and like-for-like sales fell 1.6%.

While food sales fell by almost 1%, its premium Taste the Difference range grew 2%. The grocer also explained how its £150 million investment in price has helped to drive transaction growth of 3% and volume growth of 1%, as the retailer is determined to remain competitive in the supermarket price war.

Online

Online for Sainsbury's continues to grow both across food and clothing. Online groceries grew by 7% and orders grew by almost 14%. The retailer also experienced a record online week where it delivered 256,000 orders. Sainsbury's now has 53 grocery click & collect sites, with plans to have 100 by the end of 2015.

But the grocer is continuing to pick online orders from stores rather than opening 'dark stores'. It said: "Picking grocery online orders from our stores makes good commercial sense as we can use stores that are already open. As click & collect grows in popularity, it also makes commercial and operational sense to pick orders as close as possible to the collection point, minimising additional transport and handling costs."

Over the period, Sainsbury's launched its Tu clothing brand online with initial sales "exceeding management expectations". This helped to drive a 10% growth in overall clothing sales.

CEO, Mike Coupe, said: “Our strategy of investing to ensure customers can shop with us across multiple channels remains a strategic advantage. Shopping at Sainsbury’s is now more convenient than ever for our customers and we are able to reward them for their loyalty."

Efficiency

Coupe continued: “We continue to run the business efficiently and our cost savings programme is ahead of plan. We now expect savings of around £225 million by the end of this financial year and we are on track to deliver our target of £500 million cost savings over the next three years."

Sainsbury's said its customers are still shopping smarter in the wake of the recession, which has led to shopping in convenience stores and online.

The grocer said it believes supermarkets will remain the dominant channel for food shopping, but all supermarkets need to "adapt their product and service proposition".

The retailer said: "Against this backdrop, grocers who run efficient operations across a broad range of channels will be the most successful and best-equipped to deal with the current sector turbulence."

Sophie McCarthy, consultant at Conlumino said the results highlighted the continued pressure the Big Four supermarkets are facing.

"It further highlights the intense competitive pressures that Sainsbury’s is encountering, it does appear to be on track for an improving performance.

"But it is unlikely that the pressure from the discounters will ease off anytime soon and, with Amazon now trialing its Fresh grocery business in the UK, competition will only intensify over the next 12–18 months. A focus on price investment is no longer a competitive weapon and has become an essential element of any supermarket strategy if it is to survive. Therefore, Sainsbury’s is instead looking for other differentiators to attract consumers, recognising that a ‘race to the bottom’ is not a sustainable strategy. Refreshing store formats, focusing on quality and strengthening other arms of its business, such as financial services, should serve it well moving forward."