'Year of change' pushes Sainsbury into the red

Related tags Sainsbury Morrisons Tesco Asda

Britain's third largest supermarket group Sainsbury today confirmed
that it had slipped into the red in 2003 as it continued to feel
the impact of its three-year structural overhaul. The company had
already warned that margin pressures in an increasingly price
conscious UK market would take their toll on profitability this

Pre-tax profits dropped by 2.9 per cent to £675 million, but this excluded costs of exceptional costs of £54 million, largely relating to the restructuring of its Sainsbury's Supermarkets unit in the UK, and a further £11 million in goodwill costs relating to the sale of the Shaw's unit in the US.

Total turnover for the year was up by just 0.5 per cent to £18.2 million, although Sainsbury preferred to highlight the 2.4 per cent increase in turnover from continuing operations (to £15.5 million), which excludes results from Shaw's.

Perhaps not surprisingly, new Sainsbury CEO Justin King took the opportunity to draw a line under the upheavals of the last three years - which have seen the company redesign its entire store portfolio, launch a new range of non-food products and revamp its IT and sourcing, among other measures - preferring instead to stress the necessity of building on these improvements in the current year.

"The past three years have seen enormous change but we must now build on the investments made and re-focus our attention on delivering a better offer for our customers,"​ he said, an acknowledgement that the newly streamlined Sainsbury still has work to do to get the fundamentals of its business back on track.

The last year alone has seen Asda overtake Sainsbury as the number two multiple grocer in the UK, and the emergence of Morrisons as a strong fourth player following its Safeway takeover, and attracting customers back to its stores will have to play a major part in Sainsbury's strategy for 2004 if it is to stand any chance of regaining its former glories.

King, at least, feels that this is possible. "We are clear about the qualities and strengths of the Sainsbury's brand. Our job is to provide even better quality products at good value prices. We know that the disruption of change has meant we have not served customers as well as we would wish and are committed to ensuring that customers see the benefits of our investments in the coming months."

'Good value prices' is the key phrase here, and this has increasingly been the stumbling block for Sainsbury in a market which has become increasingly price-driven. Both Tesco and Asda have responded aggressively to the perceived threat of Morrisons rolling out its Every Day Low Pricing (EDLP) policy at the traditionally expensive Safeway chain, and Sainsbury has been forced to follow suit - although it has resisted price cuts for a long time in an attempt to maintain its upmarket image.

With Tesco firmly holding the higher ground in the battle for the best quality:price ratio, Asda and Morrisons dominating on EDLP and Waitrose carving an ever larger niche for itself in the upmarket sector, Sainsbury still needs to find its right market niche. All the indications (including its drive into the convenience sector, development of retail services, etc.) are that Sainsbury is preparing to take arch rival Tesco head on - a gamble which is ambitious but undoubtedly risky.

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