Sainsbury's sees Argos boost

Sainsbury's grocery like-for-like sales edged 0.1 per cent higher over its Christmas quarter

The UK's second biggest supermarket chain said it delivered a good Christmas performance and robust Black Friday trading helped its recent Argos acquisition reported a 4 per cent increase in like-for-like sales.

Sainsbury's grocery like-for-like sales edged 0.1 per cent higher over its Christmas quarter, highlighting Morrisons' strong performance on Tuesday when it reported a 2.9 per cent rise, its strongest festive performance in seven years.

Sainsbury's modest rise in like-for-like sales in the 15 weeks to January 7 beat forecasts for a small fall in sales.

Sainsbury's chief executive Mike Coupe said the strong performance at its recent Argos acquisition "reinforced the case" for its £1.4bn takeover of Home Retail Group last year.

But he sounded a note of caution as supermarkets remain under pressure amid a fierce price war with discounters Aldi and Lidl, as well as pressure on costs from the Brexit-hit pound.

"The market remains very competitive and the impact of the devaluation of sterling remains uncertain," he said.

He refused to be drawn on whether the chain will swallow price increases or pass them on to customers.

"Our job is to do everything we can to mitigate price fluctuations," he said.

Price increases on some products, eg, petrol, bananas and milk, have already gone through to customers.

In a further sign of food price hikes on the horizon, Sainsbury's said deflation in its grocery arm eased back to 0.5 per cent in its third quarter, compared with 1 per cent in the previous three months.

Data from Kantar Worldpanel on Tuesday revealed the first food price inflation in more than two years across the sector over the Christmas quarter, while Mr Kipling cakes firm Premier Foods confirmed it was in talks with retailers over "mid-single digit" price rises.

Sainsbury's reported record trading during the key Christmas week, with more than 30 million customer transactions and over £1bn of sales across the group.

Sales at its online grocery arm rose by more than 9 per cent, while the group's Tu clothing range delivered a 10 per cent sales hike.

Best-sellers included Taste the Difference party food and prosecco, while at Argos there was strong demand for the iPad mini, PlayStation 4 computer games consoles and Fitbits.

Combined sales across both the supermarket and Argos were 1 per cent higher excluding fuel.

Mr Coupe said supermarkets that now have an Argos digital store saw a 20 to 25 per cent rise in total sales, and added that food sales in combined stores were enjoying a 1 to 2 per cent boost as click-and-collect shoppers also popped in to pick up grocery items.

"We see a food halo. Argos customers will buy into Sainsbury's when they visit our stores," he said.

Phil Dorrell, partner at Retail Remedy retail consultants, said: "The market was expecting a sign that the Argos acquisition was sound and a strong Christmas period suggests it is.

"It is too soon to say whether it delivers within a Sainsbury's supermarket but that’s not to say it was the wrong decision. We believe it is strategically aligned with the need to drive non-food and fill space in Sainsbury’s large format stores."