Sainsbury’s festive sales rose at their slowest rate since 2005 amid tough market conditions, despite strong growth in online and convenience stores.
The UK’s third biggest supermarket reported a 0.9 per cent increase in like-for-like sales in the 14 weeks to January 5, beating the 2.5 per cent decline in the six weeks to December 30 reported by Bradford-based rival Morrisons earlier this week.
The 0.9 per cent growth is expected to make Sainsbury’s one of the Christmas supermarket winners, but it was down from 1.9 per cent growth in the previous quarter.
Industry data from Kantar on Tuesday showed Sainsbury’s posted the highest growth of the ‘Big Four’ grocers in the 12 weeks to December 23, followed by Tesco and then Leeds-based Asda.
Sainsbury’s chief executive Justin King said: “We think when the reporting season is over that we’ll emerge clearly as the winner. We’ve delivered good sales and outperform in what has remained a tough market.
“We’re growing market share. Only Sainsbury’s has increased market share over Christmas,” he added.
Retail analyst Sam Hart at Charles Stanley said: “We expect trading conditions in UK food retail to remain challenging, with real household incomes remaining under pressure and the competitive landscape intense.
“Under such conditions, Sainsbury’s like-for-like sales growth is likely to remain subdued at best, but we still think the company can progress earnings and the dividend over the medium term.”
Once inflation at 2.7 per cent and food price inflation of four per cent are taken in to account, Sainsbury’s reported negative real growth.
Seymour Pierce analyst Kate Calvert said: “We suspect Sainsbury’s will struggle to outperform in 2013 as Tesco continues its fight back and there is some margin vulnerability as momentum slows.”
Tesco is investing £1bn in a plan to revive its fortunes after a dismal Christmas in 2011 led to its first profit warning in 20 years.
The UK’s biggest retailer is expected to report UK like-for-like sales growth of 0.5 to 1.5 per cent for the six weeks to January 5 when it updates the market later today.
Asda is due to report its figures on February 21.
Analyst Clive Black at Shore Capital said: “We deem this to be a satisfactory performance in demonstrably dull market conditions.
“Sainsbury’s was trading up against a reasonably tough relative comparative of 2.1 per cent like-for-like sales growth.
“The trading momentum recorded by Sainsbury’s does represent a modest deceleration on the 1.9 per cent like-for-like sales growth recorded in the Paralympic Games-assisted second quarter for the group and it is probably fair to state that is not the trading momentum that management may have hoped for at the commencement to the festive period,” he added.
Sainsbury’s online sales rose by 15 per cent and convenience sales rose by 17 per cent.
Mr King said convenience and online make up less than 10 per cent of sales with the other 90 plus per cent coming from the traditional weekly shop.
He added that online shopping is on a par with the group’s upmarket Taste the Difference range.
His comments will cast doubt on claims that Morrisons’ lacklustre performance was solely due to its lack of an online and convenience sales.
Sainsbury’s non-food sales are growing ahead of food, helped by ‘click & collect’ which allows customers to order goods online and pick them up from their local store.
Sainsbury’s said that 60 per cent of non-food online sales was collected this way.
Clothing sales rose by 10 per cent while small electricals such as kettles and toasters saw growth of 24 per cent and cookware was up 15 per cent.
Mr Black pointed out that Sainsbury’s own-brand products grew at three times the rate of proprietary brands.
“Such sales growth depresses the top-line to a degree, albeit is beneficial to margins,” said Mr Black.
Mr King said Sainsbury’s is well positioned for the next quarter when it expects the tough economic backdrop to persist, with shoppers looking to re-balance budgets after Christmas.
Sainsbury’s has benefited greatly from the success of its ‘Brand Match’ pricing initiative, which promises to match any price reduction offered by Tesco or Asda.
If the Sainsbury’s shop is more expensive, customers get a money off voucher at the check- out.
The rush to own-brand goods
Sainsbury’s said the slowdown in growth was due to tough comparative numbers after a strong Christmas 2011, a lower contribution from store extensions and higher sales of own-brand products, which are cheaper than branded goods.
Sainsbury’s own-brand grew at three times the rate of branded goods during the festive period.
“One of the reasons I suspect that we’ve seen a switch to own label is that it’s a great way for consumers to dial out inflation,” said chief executive Justin King.
Responding to speculation that he may leave Sainsbury’s this year, he said: “I see myself here for the long term. I look forward to reporting our 2013 Christmas results.”