The newly acquired Argos has shined in the latest Sainsbury’s results, despite lacklustre core grocery sales.
While a second consecutive quarter of declining like-for-like sales makes Sainsbury’s assertion that it continues to outperform its major competitors seem rather questionable, it has stabilised its supermarket business in the second quarter, with growth achieved in overall sales volumes and transactions.
Attributing its like-for-like decline to ongoing market deflation, Sainsbury’s highlighted its investment in price and product quality, and the broadening of its offer via the Argos acquisition as evidence for how it seeks to develop the business.
During the quarter, Sainsbury’s completed the acquisition of Argos owner Home Retail Group. Pleasingly, Sainsbury’s has reported that Argos recorded a strong second quarter performance (total sales up 3 per cent, like-for-likes up 2.3 per cent), crucial for a business it is integrating into its core proposition. Thirty Argos digital stores will be opened in Sainsbury’s stores by Christmas, while 200 in-store collection points are being introduced for Tu, Argos, eBay and DPD. However, with Sainsbury’s own general merchandise sales rising by 4 per cent over the quarter, the major challenge will now be that of synergies: how to address product overlaps, and ensure its own ranges are not cannibalised by Argos product lines.
In its core grocery offer, prices (where a further raft of cuts have been announced) and quality (such as the relaunch of its food-to-go proposition), remain important emphases. Its convenience business continues to grow in strength, where sales were up nearly 9 per cent, and this remains a differentiator both to the discounters and to rivals such as Asda and Morrisons that lack this offer. Elsewhere, its Tu clothing proposition saw sales dip against strong comparatives, but there is a strong opportunity for Sainsbury’s to boost in-store clothing sales, especially as the introduction of Argos outlets boosts the destination status of its supermarkets and encourages browsing.
Sainsbury’s notes the impact of the devaluation of sterling remains unclear, but what is certain is that the market will remain as competitive and cut-throat as ever. For this reason, Sainsbury’s must ensure the integration of Argos doesn’t cause it to take its eye off the ball in improving performance at its core grocery business.
- Greg Bromley is a senior analyst with Verdict Retail.