Things looking brighter for Sainsbury

Related tags Sainsbury Loyalty program Profit

Double-digit growth in underlying profits in the first half have
left the UK's number two food retailer Sainsbury bullish about its
prospects for full-year growth. And new store formats, an increase
in the range of non-food items and further product development are
certainly steps in the right direction.

Sainsbury, the UK's second-largest supermarket group, has highlighted the positive development of its underlying performance in its latest set of half year figures.

The company's chief executive Peter Davis said that this was the fourth successive half-year of underlying profits growth, a statistic which is all the more welcome as it came after two years of decline.

Underlying pre-tax profits were up 10.7 per cent to £342 million (€538.9m), with the UK supermarket operations showing underlying operating profit growth of 14.9 per cent to £286 million, helped by the company's ongoing programme of restructuring and cost savings.

In the US, where the group operates under the Shaw's fascia, underlying operating profits were up 8.8 per cent to $110 million (€109.8m). "This solid performance has been achieved in more challenging market conditions in both the US and in the UK, where there is less growth compared to last year, little food inflation and increased competitive pressures,"​ commented Davis.

"In Sainsbury's Supermarkets in the UK, we are focusing on building a strong business, making us more competitive for the future while maintaining our market position. We delivered £90 million of cost savings and are well on-track to deliver our target of £200 million for the year and £700 million by March 2004. We are progressing well with delivering our modern, more efficient infrastructure."

He said that the positive performance in the UK was due to a number of factors. These include the launch of product ranges such as Freefrom - a range of gluten, wheat or dairy free foods - and Way to Five - 70 products which the chain says can help boost fruit and vegetable intake.

The development of new store formats, and in particular the extension of non-food ranges, has also helped with a trial store carrying an extended range of non-food items showing a 29 per cent increase in sales in the half. The company is also continuing its drive into the convenience sector - just like its arch rival Tesco - and now has 45 Local outlets, many of which are refitted older town centre outlets.

Non-food items will clearly play a more important role in the future. "Our customers are clear that we should be first for food but also want us to enhance our non-food offer,"​ said Davis. "The Board is committed to giving more priority to this area and we are strengthening our non-food team. As a result of extensions, format development and new stores, we expect to have more space and a significantly enhanced non-food offer by this time next year."

Davis also highlighted the success of the new loyalty card scheme Nectar, launched just two months ago. "Nectar is already the UK's largest loyalty programme. With over 11 million active card users in one third of UK households, this is a significant achievement. Nectar gives customers opportunities to earn points more quickly. It's both a powerful promotional tool and a mechanism by which we can identify and shape stores and products to better meet customer needs."

But critics still point out that shoppers have to spend a huge amount in Sainsbury's stores (or in outlets operated by the other Nectar partners such as Debenhams or BP) to obtain the top rewards on offer, and the debate over whether consumers want loyalty points or lower prices will continue to rage whatever Sainsbury or any other retailer says.

There was still work to do to turn a profit at the Sainsbury's To You home delivery service, Davis admitted, although with sales up 90 per cent compared to the first half of 2001 and losses reduced by £10 million to £19 million, he was confident reaching profitability by the end of the 2003/04 fiscal year.

"I am pleased that we have delivered double digit profit growth and our cost saving targets,"​ said Davis, summing up the group's overall first half performance. "We have also improved margins and return on capital. We are now entering the peak 12 months of our business transformation programme. While we might have welcomed a more benign market we are determined to deliver on our plans and remain confident that we are making real progress across the group to achieve our targets."

It seems that Sainsbury is finally back on track, but it will have its work cut out to win back its number one spot from Tesco. And with Asda, the number three player, benefiting from its takeover by US giant WalMart to improve its position, Sainsbury will have to keep one eye on that chain as well just to maintain its number two spot. The past may have been tough, but the future could be even tougher.

Related topics Market Trends

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