Sainsbury's cuts into its own margins

Sainsbury's cuts into its own margins

For the sixth straight quarter, Sainsbury's has had to post lower turnover numbers, complete with increasingly lower like-for-like turnover. Sainsbury's, just like other major British retailers, still struggles to cope with the likes of Aldi and Lidl.

Like-for-like turnover down 2 % in first quarter

The company has also started its newest fiscal year abysmally as it had to cut into its own margins with discounts. Despite these discounts, customers are still not coming back to Sainsbury's or are still not spending as much as they used to.

 

In its first quarter, which ended 6 June 2015, the British retailer had to accept lower turnover than its equally disappointing first quarter of the previous fiscal year. Total turnover dropped 0.6 % in its first quarter, while its like-for-like turnover even dropped 2.1 %.

 

Filling up at Sainsbury's is not interesting

The numbers show Sainsbury's has suffered a sixth straight quarterly turnover drop. In its full fiscal year 2014/2015, total turnover at Sainsbury's dropped 0.2 % while like-for-like turnover even dropped 1.9 % - excluding gas sales. The third largest British food retailer would have fared even worse if gas sales were included: a 2 % turnover drop and a 3.6 % like-for-like turnover drop.

 

For supermarkets and hypermarkets, cheap gas is usually an excellent way to draw in additional customers, but it is apparently not working for Sainsbury's. Despite having opened its 300th gas station in the first quarter, its turnover including gas dropped even more than the supermarket turnover: down 2.3 % (- 0.6 % excluding gas), while like-for-like turnover including gas dropped 3.7 % (- 2.1 % without gas).

 

More volume and transactions, but lower turnover

If gas is apparently not appealing enough to draw in more crowds for Sainsbury's, the question needs to be asked whether shopping itself is. "We are known for our differentiated offer and, to reinforce our quality credentials, we announced in our Strategic Review that we would invest in the quality of 3,000 own-brand products. [...] We want to remain competitive in this environment and are encouraged by some of the early trends that we are seeing in our key trading and operational metrics", CEO Mike Coupe stated in a press release.

 

These positive operational 'metrics' Coupe refers to are the increase in volume and number of transactions. Coupe is known for his enthusiasm, but these metrics now show that customers do not spend as much on average especially considering the lower like-for-like and total turnover. Discounts have managed to boost turnover sufficiently, but also undermine its margins.

 

Hope for online and convenience stores

Sainsbury's hopes it can counter the pressure on the turnover and profitability of its supermarkets through its convenience stores and online growth. According to its own numbers, there was a double-digit growth in those convenience stores. It also opened 10 more convenience stores, while 3 were closed and 4 were remodeled. All in all, it increased its convenience store network by 7, while it has not added a single supermarket in the past quarter.

 

Its online activities noted a record week in the first quarter, with 256,000 online orders. "We have now opened 20 grocery Click & Collect sites and remain on track to have 100 sites by the end of 2015. We have increased the number of delivery slot options to give customers greater flexibility and we won the quarterly Grocer 33 award for online service and availability, reflecting the improvements in our own customer satisfaction scores. We continue to invest in our broad range of products and services and our multiple channels to market", Coupe said.

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