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Sainsbury’s claim it leads rivals ‘dubious’

UK supermarket retailer Sainsbury’s has had a disappointing start to the year, unable to build on the like-for-like growth momentum it established in the last quarter of last financial year.

With Tesco’s like-for-likes having grown by 0.9 per cent in its full year and Morrisons shifting gear with first quarter like-for-like growth of 0.7 per cent, Mike Coupe’s claim that Sainsbury’s continues to outperform its major peers begins to look a little dubious, observes Verdict Retail senior analyst David Alexander.

“The buzz word for both Sainsbury’s and indeed, Tesco, seems to be trust. Amid challenging times for British families, the discounters, with their straightforward proposition of limited ranges and reliably low prices have left the big grocers exposed for their more opaque approach to delivering value, marked out by a confusing array of promotions and brand matching,” said Alexander

Sainsbury’s and Tesco have adopted similar approaches in their fightback, reducing complex promotional activity in favour of more stable low prices, aligning themselves closely with values that portray a more caring image, such as reducing waste and improving in-store service standards.

“So, while Sainsbury’s may lay claim to the notion that “our values make us different”, a quick perusal of the competition suggests that, at least in terms of its strategic objectives, Sainsbury’s is far from unique,” said Alexander.

“Shorter term strategic objectives may leave Sainsbury’s struggling to stand out from the crowd, but the long term goodwill in the business continues to serve it well. The development of its convenience network, the legacy of which is an estate that is more closely aligned with modern grocery shopping habits than some of its rivals, has left Sainsbury’s in a position of strength, while its reputation for the quality of its products should allow it to hold its own as the Tesco fightback continues in earnest.”

Takeover target Argos strong

Meanwhile,  Sainsbury’s soon-to-be subsidiary, electrical retailer Argos has recorded a successful quarter, its strongest in two years, according to fellow Verdict Retail analyst Andrew Stevens.

Total internet sales grew 16 per cent in the quarter, however the increased adoption of its Fast Track same-day delivery service means that true online growth is even higher Verdict estimates a rise of 17.5 per cent to £119 million.

“A good performance in TVs, mobiles, computers and tablets drove growth in electricals, despite a slump in white goods. Outside of electricals, furniture and sports performed well. Gross margin took a 100bps hit, owing to the impact of currency movements and increased shipping costs. Furthermore, the shift in sales towards margin dilutive products has had a negative impact,” said Stevens.

The acquisition by Sainsbury’s is set to complete in the third quarter of 2016, providing Argos with an opportunity to extend its reach to more shoppers.

“The transformation at Argos over the past two years has been significant, and serves as proof that combining a strong physical presence with a modern online offer is a viable defence to the rapid rise of pureplay rivals.”

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