Sainsbury relies on Argos lifeboat in turbulent waters

The British mid-market grocer is finding it tough to keep pace with rivals although its acquisition of the catalogue retailer has helped to shore up its profits.

A Sainsbury's store in London. The British supermarket chain is being squeezed by competition although its purchase of Argos has helped. Ben Stansall / AFP

Sainsbury’s is struggling to keep up with supermarket rivals and discounters in a UK grocery market under pressure from a Brexit-induced fall in the pound.

Data from the researcher Kantar Worldpanel showed on Wednesday that as well as lagging behind the growth of the cut-price grocers Aldi and Lidl, Sainsbury’s food sales are also trailing rivals Tesco and Morrison’s. Amid tough competition, all of the United Kingdoms major grocers have struggled to pass along higher costs stemming from a fall in sterling since the UK voted to leave the European Union.

Sainsbury’s is “having to run harder to stand still in the supermarket business”, said Clive Black, an analyst at Shore Capital.

While Sainsbury’s said the impact of Brexit remains uncertain, it is helping suppliers to improve their productivity and scrapping night shifts in hundreds of supermarkets to reduce costs. The retailer, which previously announced a goal of cutting expenses by £1 billion (Dh4.74bn) over six years, said it was on track to deliver half of that reduction by the end of its current fiscal year.

“Complexity has crept into our business over the years,” said the chief financial officer Kevin O’Byrne said. “We are trying to cut costs everywhere without impacting customer service.”

The shares fell as much as 4.4 per cent in London trading after Sainsbury’s said underlying pretax profit for the 12 months through March 11 fell 1 per cent to £581 million s. It was the third straight year of declines in pretax earnings, but was in line with the £580m average estimate of nine analysts surveyed by Bloomberg.

Sainsbury’s was shielded somewhat by its acquisition of the general-merchandise chain Argos last year, which initially drew investor scepticism. Without a £77m contribution from Argos, the company’s group profit would have fallen 16 per cent. The grocer has added 59 Argos concessions in its stores.

“What began as a bolt-on has turned into a lifeboat,” said John Ibbotson, the director of the consultancy Retail Vision.

* Bloomberg

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