1st Oct 2014 06:54
LONDON (Alliance News) - J Sainsbury PLC Wednesday cut its full year like-for-like sales forecast, after it said trading in the second quarter slumped, a move that had been expected by analysts after the whole sector was hit by competition from discounters and premium grocers.
The supermarket also admitted that the sector is going through a big change as consumer shopping habits change and price deflation has set in.
"The market remains dynamic and fiercely competitive. The long-running trend of more frequent, convenient shopping has accelerated, resulting in smaller basket sizes. An increase in price investment and short-term competitor promotional activity, combined with favourable commodity markets, has resulted in deflation in many areas of our food business," said Chief Executive Mike Coupe in a statement.
Sainsbury's, the UK's third-largest supermarket chain by market share, revealed that sales momentum weakened further in the 16 weeks to September 27, reporting a decline in like-for-like sales in the second quarter of 2.8% year-on-year excluding fuel, and down 4.1% including fuel, its third consecutive quarterly decline.
Sainsbury's said in June that it was expecting like-for-like retail sales to grow in line with the previous year's 0.2% growth including contributions from new space, and to be flat excluding new store openings.
However Sainsbury's said Wednesday that it expects "significant pricing activity and food price deflation" to persist, and as a result it now expects second half like-for-like sales to be similar to the first half, when retail sales and like-for-like sales for the first half were down 2.1% year-on-year excluding fuel. First-half total retail sales declined 1.4% including fuel, with like-for-like sales declining 3.4% including fuel.
Its total retail sales for the second quarter declined 0.8% year-on-year excluding fuel, and were down 2.3% including fuel.
In the first quarter, Sainsbury's posted a 1.1% decline in like-for-like retail sales including VAT but excluding fuel for the 12 weeks to June 7 from the same period a year earlier. Including fuel, like-for-like retail sales fell 2.4%.
Sainsbury's said the sector is undergoing huge structural change and it will provide a detailed "strategic update" at its interim results on November 12, including details on its dividend policy.
German discounters Aldi and Lidl have grabbed market share and spurred the likes of Tesco PLC, Wm Morrison Supermarkets PLC, Wal-Mart-owned Asda and Sainsbury?s into cutting prices this year. Upmarket grocers like Waitrose and Marks & Spencer are also nipping away at the big four's market share at the top end of the market.
Aldi revealed on Monday that its UK pretax profit rose 65% to GBP260.9 million in 2013, while revenue in the UK grew almost 34% to GBP5.27 billion.
Aldi's tale of soaring sales and profit come just a week after Tesco revealed it had overstated its first half pretax profit guidance by GBP250 million, sending its shares plunging lower. Tesco said Wednesday it is now being investigated by the Financial Conduct Authority, one of the UK's financial regulators, over the matter.
While Tesco remains the clear market leader, the latest Kantar figures show its share of the UK grocery market slid to 28.8% in the 12 weeks to September 14 down from 30.2% a year earlier, while its sales fell by 4.5% in the period.
Sainsbury's shares hit a six-year low last Tuesday after the Kantar data for the 12 weeks revealed another fall in Sainsbury's market share and sales, with sales declining 1.8% year-on-year and its market share shrinking to 16.2% from 16.6%.
Last week, Sainsbury's pledged lower prices on its branded products, and said it will now only match its 'brand match' scheme with Asda's prices and not Tesco as well. Just days later it also announced it will slash the cost of diesel and petrol by up to 5 pence a litre.
The grocer said its brand match coupons will now only compare its prices and deals on brands with Asda, and no longer Tesco. Since launching the brand match scheme three years ago, the grocer had been comparing prices with both Asda and Tesco.
The lower prices will kick in on October 2, and it has committed to the pricing match for at least 18 months. It said it will be lowering base prices on thousands of lines within its food business, and will match Asda's prices on brands even when those products are on promotion.
The supermarket chain said its general merchandise and clothing businesses continue to deliver "strong growth".
"Our convenience business reached annualised sales of GBP2 billion and continues to grow strongly, at around 17%. Groceries online grew by around 7%, impacted by a high level of competitor customer acquisition activity in the [second] quarter," the grocer said.
Sainsbury's said it is on track to open five new Netto stores by the end of the year. In June, the grocer moved to capture a share of the growing UK discount grocery sector, and fight back against the recent success of Aldi and Lidl, by announcing its plans to create a joint venture with Danish international discount grocery retailer Netto in the UK.
During the second quarter, Sainsbury's opened 23 new convenience stores and refurbished 10 of its existing Sainsbury's Local stores. It also opened two new supermarkets, three supermarket extensions and refurbished a further two supermarkets.
"We will deliver around 750,000 square feet of new space this year, including around two new convenience stores per week," it said.
By Rowena Harris-Doughty; [email protected]; @rharrisdoughty
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