Is Sainsbury's losing focus amid wrangling over Argos?

Britain’s second biggest supermarket after Tesco reported a 0.8 per cent drop in like-for-like sales in the 12 weeks to June 4.

The fall marks a setback after a return to quarterly like-for-like growth for the first time in more than two years during the previous three months, when sales edged 0.1 per cent higher.

Sainsbury’s blamed revolting weather in April and the timing of bank holidays for the sales blip, saying it has confidence in its underlying trading strategy and that it is outperforming its peers.

The first quarter update comes as Sainsbury’s £1.4bn takeover of Argos owner Home Retail Group faces scrutiny from the competition watchdog.

The Competition and Markets Authority will decide whether to launch an inquiry by July 25.

Sainsbury’s CEO Mike Coupe said he was “as confident as we can be” that the Home Retail deal will be cleared.

However the CMA is not always predictable.

Analyst Clive Black at Shore Capital said: “Sainsbury’s management is hoping for approval in the third quarter, so there must be an assumption of no phase II investigation by the CMA.

“We will be relieved for Sainsbury’s if this is the case albeit it is impossible to read the machinations of the CMA, which operates in a universe often far removed from the real world, an assertion too often backed up by painful empirical evidence.”

Phil Dorrell, partner at Retail Remedy retail consultants, added: “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 four to five months away, and can potentially distract the leadership team further leaving market share on the table.”

Mr Dorrell believes that Sainsbury’s focus on everyday low prices is absolutely the right strategy for the longer term as a price war has no winners.

However he makes the very good point that Sainsbury’s should be doing more to promote sales at its discount Netto operation.

Netto in the UK is a joint venture between Sainsbury’s and Netto’s parent company Dansk Supermarked.

The Danish grocer, which pulled out of the UK in 2010 when Leeds-based Asda bought its stores for £778m, has returned to Britain “bringing a fresh Scandinavian flavour to the UK discount sector”.

Sainsbury’s has previously said that if the trial proves successful, the next stage of the joint venture will see the new format rolled out across the country.

Wakefield-based Netto has a real opportunity to take on the German discounters Aldi and Lidl.

A nationwide roll out of Netto could also steal market share from the big four.

Blackfriar asked Mr Coupe what the plan was for Netto and he said: “We are currently operating 16 Netto stores and we are reviewing the business. We will talk about it in more detail in November. It’s still a relatively young business.”

In January it emerged that Sainsbury’s had filed around 10 planning applications for new Netto stores in the north of England.

“It’s early days but we are learning a lot about the important discount market and customers are responding well,” said a Sainsbury’s spokeswoman at the time.

Sainsbury’s needs to make a lot more of its Netto operation.

Perhaps Mr Coupe agrees and his reticence is an attempt to hoodwink rivals about his true plans for the brand.

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