First published in Marketing on 11th November 2015
These are obviously testing times for the supermarket sector. Sainsbury’s has just announced a fall in both profits, by 17.9%, and like-for-like sales, down by 1.6 per cent, for the six months to 26 September.
Mike Coupe, the Sainsbury’s chief executive, said that “the grocery retail marketplace remains challenging” and cited investment in food price reductions and broader structural issues, such as food deflation, for the decline.
Analysts were expecting the falls to be steeper and my initial reaction is that I’m actually pleasantly surprised at the results. Yes, profits are down but if you look at things closely Sainsbury’s has made a £150 million in price and still delivered a 6 per cent increase in total income. It indicated that its prices “remain as competitive as ever” and claimed that price satisfaction scores have increased this year.
The problem for Sainsbury’s is that it is facing similar challenges to its rivals. Dave Lewis, the chief executive of Tesco, said in his recent CBI Conference speech that his sector faces three big challenges: the growth of digital, the growth in the number of retailers in the grocery sector and in convenience shopping, and structural costs increasing at a time of low profitability. As a result of these challenges, profit margins in the sector have shrunk from 5 per cent to 2 per cent in just five years.
Significantly, Sainsbury’s is facing the prospect of digital transformation. A challenge facing almost every business of scale anywhere in the world, it has to look at how new technologies can remove cost from its operations and how digital will enable it to connect better with their customers, who’s shopping habits are changing. It’s actually doing a pretty decent job on this and its online sales are up slightly.
And like many other big names it is in danger of being “caught in the middle”, it lost out years ago on price to Asda and Tesco, but maintained its brand values and is still a great place to shop. But shoppers are chasing value (price x quality) and are trading up, to Waitrose, and down, to Aldi and Lidl. Sainsbury’s risks being bounced out and that’s why the investment in price, making fresh produce more affordable for its customers, is significant and something I applaud.
In brand terms, Sainsbury’s is doing all the right things. The problems for the grocery retailer are not ones created by their brand positioning or advertising. Sainsbury’s is doing some innovative things with its marketing, the latest being its Halloween campaign, complete with the “Spooky Speaker” voice changing app, which provided some neat digital ideas.
There’s nothing wrong with the Sainsbury’s brand, it has a good heritage and as it prepares to launch its Christmas campaign and readies itself for a busy seasonal period, I’d say that Sainsbury’s is going about things the right way and its investment in price will pay dividends.