Sainsbury’s Strengthens Market Position Despite Challenges at Argos

Sainsbury’s has solidified its position as a top performer in the UK grocery market, achieving a market share of 15.2%, just behind Tesco. This growth is largely attributed to the company’s strong food sales, driven by changing consumer habits, according to CEO Simon Roberts. “We’re making the biggest market share gains in the industry, with continued strong volume growth,” Roberts said, highlighting that more customers are choosing to eat at home and indulge in higher-quality products as dining out becomes more expensive.

The supermarket chain has concentrated its efforts on food sales, making significant investments in its Aldi price-match scheme, launching 600 new products in its convenience stores, and offering discounts through its Nectar loyalty program. Roberts revealed that 25% of the company’s weekly shoppers are new customers, signaling the success of these strategies in attracting and retaining consumers.

However, despite strong growth in groceries, Sainsbury’s faced setbacks from its Argos division, which reported a 5% decline in sales during the six months ending September 14. The company cited several factors affecting Argos’s performance, including unseasonably warm weather, cautious consumer spending on big-ticket items, and reduced online traffic. In response, Sainsbury’s implemented promotional activities and discounting strategies, which helped improve sales later in the half-year period.

Overall, total retail sales, excluding fuel, rose by 3.1% to £16.3 billion, compared to £15.8 billion in the same period last year. Headline pre-tax profits saw a 4.7% increase, reaching £356 million. However, statutory pre-tax profits, excluding discontinued operations, dropped 52% to £131 million, primarily due to a planned £27 million investment across the business.

In an effort to better manage fluctuating demand, Sainsbury’s has invested in AI and automation, implementing the Blue Yonder platform to forecast product needs for each store. This technology helps reduce food waste and ensures better stock availability.

Looking beyond the financials, Roberts also raised concerns about the future of British farming, urging government action to support farmers facing challenges due to changes in inheritance tax laws for agricultural assets. He called for collaboration to ensure the long-term sustainability of the UK’s food system.

With the festive season ahead, Sainsbury’s is optimistic about its performance. Early sales in its Christmas range and strong food orders have set a positive tone. The company forecasts an underlying operating profit of between £1.01 billion and £1.06 billion for the full year, anticipating growth of 5-10%.

Analyst Clive Black of Shore Capital commended the company’s efforts, noting, “Sainsbury’s has materially improved its core value credentials, and that is starting to be reflected in customer satisfaction.”

Despite these advancements, Sainsbury’s shares fell by 4.1% to 256¾p, as weaker performance from Argos weighed on the company’s overall results. However, the company remains confident that Argos will see a rebound in the second half, driven by Christmas and Black Friday shopping.