views

Non-food to drive growth at Sainsbury's

J SAINSBURY has pinned its growth hopes on a bold expansion of its non-food offering, with plans to take on market leaders Tesco and Asda in larger-format stores.<br /><br />Unveiling a robust 18 per cent rise in first half profits to &pound;307m yesterday, chief executive Justin King outlined a &pound;2bn expansion programme for the next two years.<br /><br />Sainsbury&rsquo;s will open 50 new supermarkets by mid-2011 and extend existing stores to increase sales of clothes, appliances and technology. <br /><br />King said non-food sales had grown at two and a half times the pace of food in the first half, with Sainsbury&rsquo;s own Tu brand breaking into the top 10 UK clothing brands by sales.<br /><br />The recession has drawn consumers to the budget, non-food ranges of supermarkets. Tesco has been aggressive in expanding its non-food range in-store and online, while Asda has grown its George clothing label into a top-five brand with sales rivalling those of Marks &amp; Spencer and Next.<br /><br />Sainsbury&rsquo;s aims to double the percentage of the population who can access a Sainsbury&rsquo;s within a 10 minute drive from 20 per cent to 40 per cent within five years.<br /><br />Analysts welcomed the focus on growth but questioned whether it was too little, too late. Greg Lawless at Collins Stewart said: &ldquo;Justin King is playing the right cards at the right time but I wonder whether the other players at the poker table, particularly Tesco, have got a better hand.&rdquo;<br /><br />DOES J SAINSBURY HAVE THE RIGHT STRATEGY?<br /><br /><strong>JONATHAN PRITCHARD </strong> ORIEL SECURITIES<br />In the short term, like-for-like sales will slow in the second half, competition is fierce and Sainsbury&rsquo;s are going to be diverting a lot of earnings to the start-up costs of its expansion. That said, they are doing all the right things over a two to five year outlook.<br /><br /><strong>HOWARD WHEELDON </strong>BGC PARTNERS<br />The question though is how, without changing the strategy towards investing overseas, will Sainsbury&rsquo;s grow? Ever the optimist, King believes that there is plenty of expansion capability and growth left in the UK and that the way forward is to add more space and build more stores.<br /><br /><strong>RICHARD HUNTER </strong> HARGREAVES LANSDOWN<br />Underlying margins showed an improvement, whilst pre-tax profit was comfortably ahead of last year, underpinned by strong growth in non-food and online. Even so, reducing price inflation and an unrelenting assault on cost conscious consumers by rivals will keep Sainsbury&rsquo;s in check.