UK supermarkets' problems are still lingering in the new financial year, after Sainsbury's reported a fall in like-for-like sales over the last three months and warned of challenging times ahead.
With total sales looking steady and investors fearing worse, however, shares jumped 2.6 per cent to 253p in early trading.
Total retail sales excluding fuel were up 0.3 per cent in the 12 weeks to 4 June, but fell 0.8 per cent on a like-for-like basis.
Including petrol, the figures was even more disappointing, felling 0.1 per cent, while like-for like sales dipped one per cent.
Sainsbury's held back from opening or closing any of its larger stores in the first three months of the year, in a further sign the space race among the Big Four is well and truly dead.
Why it's interesting
Sainsbury's has held up comparatively well compared to the likes of Tesco and Asda, which have hit the headlines in a big way thanks to their weak performance. Today's figures, however, showed none of the legacy players are free from disruption in the highly competitive grocery industry.
In response to the rise of discounters such as Aldi and Lidl, Sainsbury's completely removed its "brand match" scheme during the three months of the year, instead cutting costs across key staples such as chicken and cheese.
FTSE -5 points opening calls – Wh smith unch, ao world up 1%,— David Buik (@truemagic68) June 8, 2016
boohoo up 1%, imperial brands unch, sainsburys up 2%, ocado down 2%.
"Promotional participation levels" – a measure of how many products are included in multi-buys and special discount prices – also tumbled from 30 per cent last year to 23 per cent in this period. This is in response not only to stronger competition on headline prices, but also concerns from regulators and campaign groups at multi-buy deals and shelf-grabbing promotions.
The numbers also provided more insight into the proposed takeover of Argos-owner Home Retail Group. Chief executive Mike Coupe heralded a strong "multi-channel" approach from the supermarket, as it closes in on securing te £1.4bn deal which could extend both Sainsbury's and Argos' physical and online footprint.
What Sainsbury's said
"Sainsbury's is well-positioned. Our core food business offers customers choice, quality and a clear value proposition. General merchandise and clothing continue to perform well with good sales growth across both businesses, and we continue to see encouraging results from Sainsbury's Bank, a significant opportunity for long-term growth.
"Market conditions remain challenging. Food price deflation continues to impact our sales and pressures on pricing mean the market will remain competitive for the foreseeable future. However, we are confident that our strategy to be a trusted multi-channel, multi-product and services retailer is delivering and will enable us to continue to outperform our major peers."
What analysts said
Phil Dorrell, a partner at Retail Remedy asked whether Sainsbury's had "taken its eye off the ball":
"The Argos takeover could be blamed for interrupting what has previously been strong leadership and management through this disruptive age of grocery retailing. The deal, if it goes ahead, is at least 4-5 months away, and can potentially distract the leadership team further leaving market share on the table.
"We have become unused to using the term decline in the same sentence as Sainsbury's. In fact there is a temptation to gloss over a fall in like for like sales as a short term blip for long term security. This decline in like for like sales has come as Tesco is returning to growth. It is no coincidence and should not be glossed over."
Laith Khalaf, a senior analyst at Hargreaves Lansdown suggested that although tinkering with promotions and the upcoming Euro 2016 tournament could provide some relief, all the chips were on the Home Retail Group takeover:
"Nothing will move the dial at Sainsbury's more than the planned acquisition of Home Retail Group, the parent company of Argos. If the takeover proceeds, integration goes smoothly, and performance is improved, the deal will look a triumph. But like Sainsbury's, Argos has its own problems, and the outcome of two challenged businesses joining forces still remains very uncertain."