Sainsbury's thinks big in tough times

Sainsbury’s reports that like-for-like sales rose 0.6% in the half-year to September, despite an "extremely competitive" market.

Half-year profits, however, slumped by 40% to £132 million due to restructuring and a bevy of one-off expenses related to Argos integration, Sainsbury’s Bank transition and the proposed merger with Asda. Excluding these costs, its pre-tax earnings rose by a fifth to £302 million on an underlying basis. 

Mike Coupe, Sainsbury’s group chief executive, noted that the retailer was transforming its business to meet rapidly changing customer needs. 

“We have delivered a solid first half performance and profit has increased because we have delivered significant Argos synergies ahead of schedule. Sales of food and general merchandise were boosted by the hot summer, but general merchandise margins remain under pressure,” he commented.

“Our strategy of offering customers a distinctive range of high quality and great value food has driven like-for-like sales growth. Where we have invested to lower prices, volumes and transactions have increased.”

On the tech front, Sainsbury’s has been testing out a mobile payments service at its Local store in Clapham North, London. Shoppers scan their items on the SmartShop app, then pay for them through Apple Pay and leave the store without dealing with checkouts. 

It has also created a new Group chief digital officer role. Clodagh Moriarty has stepped up from the post of director of online and is leading the group’s digital strategy, with a focus on an integrated and seamless digital customer experience across Sainsbury’s, Argos, Sainsbury’s Bank and Nectar.

Argos and Asda

Sixty Argos stores were opened in Sainsbury’s supermarkets in the half, bringing the total to 251. There are also now 233 order collection points in supermarkets and convenience stores.

The controversial Asda deal, meanwhile, will create “a dynamic new player in UK retail, with the ability to further lower prices and to reduce the cost of living for millions of UK households."

It has to first get past the Competition and Markets Authority, of course, which is conducting a Phase Two review. “We continue to engage constructively with the CMA and panel,” Coupe said.

The merger would see Sainsbury’s overtake Tesco as the UK’s biggest supermarket chain and also edge past its Clubcard offering. Asda has made no secret of its desire to build a single customer view, but the lack of a loyalty programme has hamstrung its efforts in this area. Nectar, bought last year for £60 million, would provide a major boost to attempts to better understand shopper needs. 

“The Asda deal remains a crucial plank in management's plan to combat rising competition from German discount retailers, Amazon's online offering, a resurgent Morrisons and a healthier Tesco,” says Fiona Cincotta, senior market analyst at City Index.

“Unfortunately for Sainsbury's, a positive outcome of the competition regulator's probe into the transaction is far from a foregone conclusion. If the regulator's blessing is conditional on hundreds of forced store closures, the impetus for the deal could crumble.”