SAINSBURY chief executive Mike Coupe has warned the full impact of inflationary price pressures remains unknown, but that the industry is facing a “rising tide”.
Mr Coupe was speaking as Sainsbury’s saw like-for-like retail sales fall 0.5 per cent as the group moved from food deflation to inflation, in line with market conditions.
In its fourth quarter, the input from Argos was described by one analyst as a “get out of jail free” card for the group as a strong performance from the chain offset the retail decline.
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Like-for-like sales across the group were 0.3 per cent, driven by a 4.3 per cent increase in Argos.
Total retail sales were up 0.1 per cent in total, helped by a five per cent lift in its Tu clothing range.
The negative comparison with last year can largely be attributed to Mother’s Day and Easter being later this year, which contributed to a four per cent fall in general merchandise sales.
Kantar Worldpanel last week reported that Sainsbury’s market share had fallen to 16.5 per cent from 16.8 per cent in the 12 weeks to February 26. Kantar also reported grocery inflation has doubled to 1.4 per cent.
Of rising inflation, Mr Coupe said: “that is just generally the rising tide that you are beginning to see”.
The upwards shift in prices highlights that the impact on sterling of the Brexit vote last June is now making its way through the supply chain and into the pockets of hard-pressed consumers.
Mr Coupe said: “The market remains very competitive and the impact of cost price pressures remains uncertain. However, we are well placed to navigate the external environment and remain focused on delivering our strategy.”
Sainsbury operates 99 stores in Scotland, comprising 35 supermarkets and 64 convenience stores.
The strategy being led by Mr Coupe, who has been chief executive since July 2014, is focused on simplifying its strategy towards lower regular prices, with less reliance on promotions.
John Ibbotson, director of the retail consultancy Retail Vision, called the numbers “challenging”, saying: “[Sainsbury’s] core grocery business remains adrift as Tesco and Morrisons stem their losses and fight back with aggressive price cuts and fundamental structural reforms.
“In this context, Argos could emerge as a ‘get out of jail’ card for Sainsbury’s. With strong sales growth, albeit at the expense of margin, Argos offers Sainsbury’s the chance to build a long-term and genuinely multi-channel strategy.”
The group has progressed with its plan to accelerate its digital offering. Online sales were up seven per cent, with orders growing by eight per cent.
The company has also opened a further 11 Argos digital stores within supermarkets, taking the total to 41. There are also eight Mini Habitat stores within supermarkets.
Mr Ibbotson said having a plan different from its competitors could count for a lot in the current environment. “Sainsbury’s is playing a longer game than some of its rivals by positioning itself squarely for the internet age,” he said. “Future-proofing itself in this way could pay big dividends down the line.
George Salmon, equity analyst at Hargreaves Lansdown highlighted that the £1.4 billion acquisition of Argos and Habitat would make or break Mr Coupe’s tenure at the group.
He said: “With Argos numbers again the highlight of results, Mr Coupe will no doubt feel vindicated in his decision so far.
“However, an uncertain outlook on the foods business means the champagne will have to stay on ice for a while yet.”