Conlumino believe Sainsburys update was “better than expected”

Conlumino believe Sainsbury's update was “better than expected”

Sainsbury's focus on product quality and sourcing standards could help it reclaim ground as consumer finances begin to steadily improve, analysts believe. However, the retailer also has much to do after revealing a decline in second-quarter like-for-like sales.

The retailer this morning (1 October) said its clothing business continues to perform strongly as it revealed a decline in second-quarter sales hurt by significant pricing activity and food price deflation.

Total retail sales dropped 0.8%, excluding fuel, while like-for-like sales were down 2.8%.

George Scott, senior consultant at Conlumino believe the update was "better than expected", but said the like-for-like decline is indicative of "extremely difficult competitive conditions" for the Big Four grocers.

"Conlumino's long-term view remains that its ‘values' makes it different to its immediate peers and will allow it elevate from the sea of promotions prevalent among the Big Four as they try to compete more effectively amid share gains from the discounters as well as more premium players."

Against the backdrop of an onslaught of promotions, Scott points out a prevailing view that Sainsburys' focus on product quality and sourcing standards, and avoidance of the GBP200m per year price investment battle among its Big Four rivals, would insulate it as consumer finances begin to steadily improve.

"However, Sainsbury's has much to do if it is to retain the initiative," he adds.

"With Sainsbury's chief Mike Coupe painting a gloomy outlook, with H2 LFLs expected to be similarly negative, the grocer faces a real challenge to reclaim ground, and prevent a more enduring defection to the discounters among its customer base, even as disposable incomes improve."

Scott says Sainsbury's is relying less on market recovery to reverse its demise, and is being more "proactive" to address current consumer priorities.

"As well as its inevitable heavier recent focus on price, Sainsbury's has covered the bases of relevance well, now trading from more than 200 convenience stores, while its non-food business has surpassed GBP1bn in sales. It will need to continue to monitor and act on price, while balancing the damage on its sensitive operation margin and its quality image."