Justin King's final curtain: Sainsbury's CEO goes out on sliding sales

 
Harriet Green
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Departing boss Justin King (Source: Getty)

It is chief executive Justin King’s last set of results, and Sainsbury's has reported a 1.1 per cent fall in like-for-like sales - in line with expectations.

Including fuel, they dropped 2.4 per cent in the 12 weeks to 7 June.

But shares have risen by as much as two per cent this morning.
Darren Shirley of Shore Capital has pointed out that, considering the backdrop of weak industry sales, Sainsbury’s is faring better than competitors Morrisons and Tesco. Last week, Tesco posted a 3.8 per cent tumble in UK sales.
Sales from new stores rose 2.1 per cent in the period, slightly ahead of analysts' consensus.

But highlighting the intensifying price wars between supermarkets, the falling sales mark the second quarterly drop in a row for the retailer.

King stands down next month. This morning, he said of the trading results:

Throughout the quarter we have continued to invest in reducing prices and improving quality, increasing the value of our offer.

Lower food price inflation and reduced fuel prices are a welcome respite to customers' finances but they continue to spend cautiously, leading to industry growth in the quarter being the slowest in a decade.

Many analysts have been reiterating that this year’s going to be a tough one for Sainsbury’s, as it continues to cut prices, trying to stem the flow of market share to discounters.

Online growth

Two days ago, the supermarket announced it’s trialling selling clothes online. If successful, it’ll be rolled out across the country next year.

But people close to the company have said that clothing margins are too low to justify delivering clothes bought online to customers, and there’s the wider problem of whether the pilot will even see the uptake it’ll need.

From a grocery point of view, HSBC points out that although the internet is taking around one per cent more market share each year, Aldi and Lidl are winning share at twice that rate, without any online promotions.

That the discounters are growing faster than total online suggests that consumers want lower prices more than they want home delivery.

Sainsbury and others should stop subsidising internet growth and focus on offering in-store consumers better value for money, in our
view.

Confidence in strategy

Sainsbury’s says it’s confident it has a “clear strategy and differentiated offer” which will allow it to outperform peers in the long run. That said, it expects customer spending “to remain cautious”, so is keeping its offer “competitive” in order to make sure they’re offering something people want.

Says Cantor Fitzgerald:

Our view is that Sainsbury’s new CEO, Mike Coupe, needs to continue with their value simplicity pricing strategy which means lower base prices and lower promotional investment.

Analysts there have stressed that Coupe needs to keep a close eye on Tesco, which seems to be following a pretty similar pricing strategy to Sainsbury’s, as it’s an example of a business where finance has been allowed “to run the stores”.

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