Sainsbury’s has posted its first Christmas sales decline in more than 10 years as heavy festive discounting impacted income at the tills.
Same-store sales excluding fuel for the 14 weeks to Jan. 3 fell 1.7%, while sales including fuel were down 3.9% year on year. It marks the supermarket’s fourth consecutive quarter of sales declines, but was less of a drop than last quarter’s 2.8% same-store sales fall.
Mike Coupe, Sainsbury’s chief executive, said in the company’s third quarter trading statement: “Sainsbury’s has provided a great Christmas for our customers. Food price deflation and falling fuel prices have enabled our customers to treat themselves over the festive period.”
In other words: Customers enjoying bargains seriously hampered Sainsbury’s bottom line.
Top-performing festive products included Taste the Difference Prosecco, sales of which where up by more than 30%, and a snowman jumper designed by members of its staff, which was its best-selling item of clothing. Some 550,000 turkeys were sold over the Christmas shopping period, up 8% on last year.
Sainsbury’s numbers were “marginally better than expected” but still highlight the challenges the big four supermarkets continue to face, according to Phil Dorrell, director of retail consultancy Retail Remedy.
He says: “Sainsbury’s is under attack from all angles — from the discounters who are going from strength to strength, food price deflation, a wounded Tesco and a Morrisons that may finally be starting to halt its own sales freefall.
“Like-for-like sales slump aside, there is a lot Sainsbury’s does right. It has smaller stores than its competitors, a strong convenience business, a solid online proposition and some of the best own-label stats in the business. Taste the Difference is really starting to make a difference.
“If it concentrates on these qualities and sticks to the basics in the medium-term, it may well emerge in better shape than many expect.”
Coupe warned that the next three months will continue to be challenging and that the supermarket expects its fourth quarter like-for-like sales to be similar to that of its first half.
“The outlook for the remainder of the financial year is set to remain challenging, with food price deflation likely to continue. Our performance in the third quarter showed an improving trend quarter-on-quarter,” Coupe said.
Sainsbury’s had hoped to rally consumers through the doors with a Christmas advert that broke away from the usual Christmas narrative of families sharing gifts and eating turkey dinners and instead told the tale of real events that took place on Christmas Day during World War I. On that day in 1914, soldiers called a truce and emerged from the trenches to exchange seasonal songs, share gifts and play a football game, as was depicted in the ad.
The video was the most viewed ad on YouTube in the UK last year, but the much-admired creative failed to translate into a much-needed sales lift for the retailer.
Earlier this week Sainsbury’s announced a £150 million investment in price cuts on everyday food essentials as it looks to turnaround its sales decline.
Rival Asda has said it will commit £300 million to cutting prices in the first quarter of 2015, while Tesco is understood to announce its price investment on Thursday.
However, Retail Remedy’s Dorrell has concerns that focusing on price could damage the reputation for quality Sainsbury’s has built up over the years — and erode its margins.
Dorrell adds: “”It can’t afford to cut corners on quality, it’s not in a position to make many workforce savings, and it’s no Asda, so either the suppliers have got to play ball or margins are going to be squeezed.
“Where price falls follow revenue falls, expect the inevitable profit fall, too.”