Sainsbury’s defending against the discounters
All images are from the Sainsbury’s Results Announcement
The grocery giant Sainsbury’s reported preliminary results for the full fiscal year of 2022/2023. The results had some interesting aspects to point out. The UK grocery industry has been mired in high inflation and the subsequent rocketing rise of the German discounters Aldi and Lidl. This has challenged the traditional Big 4 grocers in managing the volume declines and somehow competing against the power of discounters.
Here are three points on how the changing marketplace can be viewed in Sainsbury’s Fiscal year reporting.
1. Declining volumes and profitability
The company reported slight growth for the food business, albeit much slower than the inflation. In General Merchandise, the company grew somewhat faster, whereas the clothing business declined slightly.
The most significant decline was seen in profitability, which has naturally been hit by intense price competition. Similarly to other big supermarkets, Sainsbury's also has taken part in price-matching schemes against Aldi. Sainsbury’s claims it has raised prices less than the discounters and its most significant competitor, Tesco.
2. Transforming Argos
One of Sainsbury’s reporting’s most exciting parts is the General Merchandise chain Argos. Argos has been transformed over the last four years under the ownership of Sainsbury’s. The more than 1100-strong store estate of Argos has been maintained on the top level. However, the structure of the store network has been changed dramatically.
About half of the initial 570 standalone Argos stores have been shut, with more closures to come. At the same time, the number of stores located within Sainsbury’s stores and standalone Collection points has increased significantly. This has led to a significant improvement in the profitability of Argos. Now the company can rely much more on the overall logistics of Sainsbury’s. With the closures of the standalone stores, Argos sales have declined somewhat from the time before Sainsbury’s ownership.
3. Online becoming 3rd biggest channel
After the pandemic, the online channel still represents a major channel for Sainsbury’s. Since the height of the pandemic online share has come down to 14%. That represents the third biggest channel of the entire business after superstores and General Merchandise sales.
Online is slightly bigger than Convenience stores and three times the size of Clothing sales.
The declines for the online channel have decreased during the latter part of the fiscal year. 2022/2023. The more reassuring figure is the picking efficiency improvement, which has increased by +6%. Another interesting aspect is the increased number of customers subscribing to the Delivery Pass service.
The Delivery Pass concept is somewhat popular in the UK but less so in continental Europe.
It is interesting as the concept reinforces customer loyalty in the online channel, also building much-needed routines for the customers.
The Convenience channel mentioned above has seen robust growth after the pandemic drop. Much of the +9% increase against the pre-pandemic levels has come from the On Demand online orders. The On Demand orders have risen rapidly to more than 100 000 weekly orders. However, the average order size is small compared to the weekly shop done by standard home delivery, which currently represents approximately 85-90% of online sales.
Since the 90s, the UK has been driven by the home delivery service, and Click & Collect has developed slowly. Sainsbury’s Click & Collect represents more than 5% of online sales.
