British retailer Sainsbury's has published disappointing results for its fourth quarter (ending on 14 March), with like-for-like turnover down 1.9 %. The drop was despite a price cut for 1,100 products in November 2014.
CEO remains optimistic
For its fiscal year 2014/15, it suffered four straight like-for-like turnover drops: - 1.1 % in the first quarter, - 2.8 % in the second quarter, - 1.7 % in the third quarter and now - 1.9 % in the last quarter. Adding to the loss in 2013/14's Q4, this makes five consecutive quarters in which like-for-like turnover has decreased.
Earlier in 2015, when the company released its third quarter figures (containing the important Christmas period), CEO Mike Coupe remained optimistic and saw light at the end of the tunnel as Christmas sales were not as bad as expected. Its convenience stores and online sales even helped grow Christmas sales, he exclaimed, and the 1.7 % like-for-like turnover drop was an improvement over the abysmal second quarter: yet another reason to cheer.
Now too, Coupe remains upbeat by pointing to the effects of its structural price drop for more than 1,100 products and Sainsbury's new approach, focused on fewer discounts and more towards permanent lower prices. "During the quarter we have seen volume growth across the food business and an average uplift of over three per cent on the 1,100 products where we have made price reductions."
"As we have reduced prices and simplified our promotional offer, we have seen like-for-like transactions grow in the quarter as new customers are discovering the great value we represent", Coupe remained full of confidence.
"Sainsbury's will outperform the competition"
Despite an increase in transactions, the customer is lowering his average spend at Sainsbury's: fourth quarter turnover dropped both on a like-for-like basis (- 1.9 %) and in total (- 0.3 %) and even the optimistic CEO had to admit that the company's prospects were grim: "We expect the market to remain challenging for the foreseeable future", he said. However, he thought his company will outperform the competition, despite structural deflation and price pressure.
The reason for his claim lies in the investments Sainsbury's has made in several areas: fresh food quality and positive turnover development in its convenience stores and online. Another 23 new convenience stores were opened in the fourth quarter, while another 14 were remodeled. "Growth in our convenience business remains strong at 14 per cent", Coupe said.
"Our groceries online business saw order numbers increase by 14 per cent, with a record week of 245,000 orders." By the end of 2015, Sainsbury's customers will be able to Click and Collect their online grocery orders from 100 sites. Coupe also refers to the collaboration with non-food retailer Argos, which will be present in ten Sainsbury's supermarkets with its own digital store.
Sainsbury's will only publish its full 2014/15 fiscal numbers on 6 May, but its quarterly numbers already reflect what the company will probably present at that time. The full financial numbers won't be any reason to celebrate as like-for-like sales (excluding petrol) have also dropped 1.9 % for its full fiscal year, while turnover has also dropped 0.2 % in general.
Holy grail of British food retail
It remains to be seen how Coupe will spin the yearly numbers as a outperforming its service supermarket competitors will not provide much solace: "We are doing badly, but our competition is doing even worse", is not exactly something that will go over well with investors.
Coupe will need to look for a strategy to fight off Aldi and Lidl, something the other British supermarket retailers are also working on. Nevertheless, the company cannot simply try to discount plenty of products to lure in customers as that will only lower profitability and is a tactic other companies can easily mimic. How to compete in the current market, taking these things into consideration at the same time, is the holy grail of British food retail at the moment, a grail every CEO is looking for, whether he works for Sainsbury's, Asda, Tesco or Morrisons.