Having endured a protracted period of like-for-like sales declines, Sainsbury’s Christmas trading period surpassed expectations.
Retailers are generally lauded when they perform unexpectedly well, but in the wake of Morrisons’ surprisingly robust 2.9 per cent Christmas sales growth, and a jubilant Malcolm Walker raising an expletive-laden cheer at what appears to have been very strong festive trading at Iceland, Sainsbury’s numbers smack more of a grocery market that has been more buoyant this Christmas than many had anticipated.
Perhaps the resurgence of the Big Four UK grocery giants, supported by a remarkable turnaround in Morrisons’ fortunes under Dave Potts and a spirited fightback at Tesco (for which, expectations for tomorrow’s Christmas release have now gone up even further), is a sign that the mainstream grocery players are finally stemming the tide of the discounters? Well, that is a conclusion that is difficult to support given a record Christmas at Aldi, where a 15 per cent sales increase over December is beyond the wildest dreams of the major grocers.
Trust and fairness are words that keep emanating from Sainsbury’s HQ, as, like a straying spouse, it continues to try and address the damage done by years of confusing multi-buy promotions and stem what is perceived to be the root cause of consumer desertion in favour of the discounters: their more clear cut value. The trouble is that Tesco recognises this too and its trading updates are just as replete with statements about restoring trust, largely by simplifying pricing and addressing media attention over ethical concerns, such as trust in the supply chain and food waste. So apart from a promise that it can change its ways, what is there to differentiate Sainsbury’s from the competition?
Well, the Cognac-laced Christmas pudding repeated its success of last year for one and Sainsbury’s premium ranges appear to have hit the right note over a Christmas during which grocery shoppers across the board seem to have shown a willingness to splash out. Its approach to channels is something that Sainsbury’s really does do well, reflected in strong performances from online and convenience, while the Argos integration looks to have got off to a promising start (though 3 per cent growth in Sainsbury’s general merchandise, despite a 10 per cent increase in clothing, suggests Argos may be cannibalising some of its sales elsewhere in non-food).
While Sainsbury’s more buoyant numbers should be qualified by the context of widespread festive cheer in the grocery market, turnarounds do not generally happen overnight and the signs are there that it is beginning to hit the right notes again. The challenge will be to continue to emphasise its points of difference, but with Argos on board, it may just have found its trump card.
Anish Dosani, senior analyst with Verdict Retail, describes Argos’ Christmas performance as “impressive” and concludes its acquisition by Sainsbury’s has been no distraction to its existing UK operations.
The retailer opened 15 concessions in Sainsbury’s stores to have a total of 30, which Sainsbury’s said were “performing well” within the 15-week trading period. Following the sale of Argos from Home Retail Group, the retailer will continue to expand into Sainsbury’s while it closes stores – Argos has already closed a total of 14 stores, with 12 of these in the Homebase estate.
“Argos traded very well over the Black Friday promotional event, which it heavily advertised, and it extended its sales period by two days to capture extra gifting sales in the lead up to Christmas,” said Dosani.
“The retailer was the most shopped in the toys and electricals categories in the Verdict Retail Black Friday and Christmas tracker reports, ahead of rivals Amazon and Tesco.”
She said Argos’ advancement of its online strategy with its FastTrack delivery and collection saw its online (including reserve & collect) sales grow by 13 per cent over the third quarter, accounting for an impressive 57 per cent of Argos’s sales.
“Argos must continue to invest and grow its FastTrack delivery service, which resonated well with consumers, ensuring it can fulfil orders to compete with Amazon’s popular Prime delivery model.”
She said that as the integration of Argos into Sainsbury’s stores picks up pace, the success of Argos will be difficult to view in isolation, as the acquisition centres on its ability to drive shoppers of each retailer into the other.
“As of yet Sainsbury’s has not revealed much detail on how concession stores have performed, and how well it is exploiting the cross sales opportunity, but its overall results are encouraging.”
David Alexander is a senior analyst with Verdict Retail.