Grocery price war takes its toll on Sainsbury’s results

Published on
May 6, 2015

Sainsbury’s has reported an annual loss for the first time in a decade, citing the intense price war in the marketplace as a key reason for its performance.

The U.K.-based supermarket chain confirmed a pre-tax loss of GBP 72 million (EUR 97.5 million; USD 109.6 million) for 2014, down from a profit of GBP 898 million (EUR 1.2 billion; USD 1.4 billion) in the previous year.

It has largely blamed its loss on a GBP 753 million (EUR 1 billion; USD 1.1 billion) charge that it booked in its half-year results and was related to write-downs on store values, but added that trading continued to be hit, with like-for-like sales falling 1.9 percent for the 12 months ending 14 March.

Underlying profits, which reflect day-to-day trading, fell 14.7 percent to GBP 681 million (EUR 922.1 million; USD 1 billion).

In its preliminary results statement, Sainsbury’s said it was investing in lowering prices on key products and that it has “never been more competitive” on price compared to its competition. 

“The U.K. marketplace is changing faster than at any time in the past 30 years which has impacted our profits, like-for-like sales and market share. However, we are making good progress with our strategy, and our investment in price and quality is showing encouraging early signs of volume and transaction growth, said Sainsbury’s CEO Mike Coupe. 

“We know that our customers still want the best quality food at great prices and our strategy is built on our strong foundations of selling great food with a focus on quality, provenance and sustainability. At the same time, we know that our customers want value for money and we have therefore invested in lowering our prices; our prices versus our competitors have never been better.”

Sainsbury’s was named “Seafood Retailer of the Year” at the 2014 Retail Industry Awards. It is also the country’s largest retailer for sustainable seafood with sales of Marine Stewardship Council (MSC) certified products totaling GBP 149 million (EUR 201.8 million; USD 226.7 million) in the year 2013/2014, up from GBP 115 million (EUR 155.8 million; USD 175 million), in the pervious 12-month period.

Despite a drop in overall sales, more shoppers through the door have helped Sainsbury’s to be the strongest performer this past year among the so-called “big four” that also includes of Tesco, Asda and Morrisons, said Kantar Worldpanel. 

Sainsbury’s market share currently stands at 16.5 percent, down 0.1 percentage points on last year.

Kantar’s latest grocery share figures, published for the 12 weeks ending 26 April 2015, show supermarket sales have slowed to a revenue growth of 0.2 percent compared to last year.

“Growth in the market has declined thanks to a record low for grocery price deflation: a typical basket of everyday items is now 2.1 percent cheaper than it was in 2014. Lower costs are the result of both falling commodity prices and the ongoing supermarket price war, with all major retailers offering cheaper like-for-like goods,” said Fraser McKevitt, head of retail and consumer insight at Kantar Worldpanel.

“This is good news for consumers, saving the average household GBP 20 (EUR 27.10; USD 30.43) in the last three months. But many of the country’s largest grocers have struggled to enjoy substantial growth, with lower prices taking GBP 532 million (EUR 720.8 million; USD 809.5 million) out of supermarket tills.”

German discounters Aldi and Lidl continue to be the U.K. market’s fastest growing retailers, up by 15.1 percent and 10.1 percent respectively, said McKevitt. Both have new record high market shares: 5.4 percent for Aldi and 3.8 percent for Lidl. 

“While such growth is the envy of the industry it is slower than in recent months, suggesting the discounter momentum is starting to slow a little," he said.

Contributing Editor reporting from London, UK

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