Saturday, February 23, 2019

Did Justin King check out of Sainsbury‘s just in time?


Sainsbury‘s, which competes with rival Asda to be Britain‘s second biggest supermarket chain by market share, has posted a statutory pre-tax loss of £72m, its first since 2005.

The Big Four grocer booked £753m of exceptional charges, mostly related to impairment charges on existing stores and the property pipeline announced alongside half-year results in November.

Mike Coupe, Sainsbury‘s CEO, is not only battling an Egyptian legal saga, but also the challenge of positioning Sainsbury‘s in the wake of a recovering Tesco and increasing competition from value retailers.

Coupe is looking to spend £150m on price cuts this year, and save £500m over the next three.

This morning Coupe said: “The UK marketplace is changing faster than at any time in the past 30 years which has impacted our profits, like-for-like sales and market share. However, we are making good progress with our strategy, and our investment in price.”

Given the one-off write-down, Sainsbury‘s loss cannot be viewed with the same drama as Tesco‘s announcement earlier this month, when it aired all of its dirty laundry and announced a record £6bn loss. For the purpose of making the next few years more positive however, boss Dave Lewis has prudently managed shareholders‘ expectations and there is hope for Britain‘s biggest retailer yet.

“Two years in an Egyptian jail is the least of Coupe’s worries after this set of numbers,” comments John Ibbotson of the retail consultants Retail Vision.

“Compared to Tesco’s £6.4bn bombshell, this pre-tax loss is a relative minnow, but it still reflects the changing narrative within grocery. The monopoly of the Big Four is no more. Coupe has brought in change but it’s nowhere near radical enough to tackle the revolution within grocery. He needs to take a lesson out of Dave Lewis’ book and kitchen-sink the whole thing.”

He adds:  “There has to be a lot more urgency or sales and profits will continue to decline. The more behind the curve Sainsbury’s gets, the sharper the decline will be. Tesco have grasped the nettle and made the big decisions, and unless Sainsbury’s does the same the medium to long-term pain will be even worse.”

Former CEO Justin King led the supermarket through a turbulent decade, racking up 9 years of uninterrupted sales growth until his last few months, preceding his handover to Sainsbury‘s current Boss Mike Coupe.

The business models of the four supermarket giants have been under pressure from new competition, burgeoning technology and a shift in consumers‘ shopping habits. Those short on cash began seeking value in German discounters Aldi and Lidl; online grocery shopping, topped up with visits to local convenience stores took precedence over bigger shops, while the tastes of those with cash moved upmarket and Waitrose flourished.