Sainsbury’s strategy to focus on food leads to sales growth

After the acquisition of Argos, the supermarket decided to refocus on its bread-and-butter food business and bolster its position in the grocery market amid growing pressure from discounters.

The measures implemented by Sainsbury’s are working as intended, and grocery sales grew 9.4% in the 52 weeks to 2nd March 2024.

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Total retail sales grew 6.8% to £30.6bn in the year, while general merchandise sales, which include Argos, grew only 1.2%.

“Sainsbury’s has delivered a strong set of results amid its large-scale strategy shift. Crucially, the 6.8% increase in retail sales has been driven by volume. This is a more resilient strategy than price, but can often be more difficult to achieve. The successes are very much showing up in the numbers, with underlying retail operating profits climbing over 4%,” said Sophie Lund-Yates, lead equity analyst, Hargreaves Lansdown.

If we judge Sainsbury’s strategy to focus on food purely by growth in different business areas, it’s working. 

Sainsbury’s has arguably been guilty in the past of having its fingers in too many pies, allowing lower cost rivals to muscle in on market share. However, after launching its “Food First ” strategy which has since evolved into “Next Level Sainsburys” earlier this year, a renewed focus was given to groceries, the Nectar loyalty card scheme and £1bn of cost savings,” said

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“This morning’s results indicate these innovations are beginning to bear fruit as the supermarket chain reported record volume growth, with grocery sales up 9.4% and expected to increase in the year ahead.”

Sainsbury’s has successfully retained its premium customer base while fighting off the discounters, which is no mean feat. 

The Nectar card scheme has been a major contributor to this. Sainsbury’s says the card provides around £12 savings per £80 shop. This method of lowering prices has retained its premium customers, who opt for higher-priced ranges while offering prices on some lines that rival Lidl and Aldi. 

Some concerns about the financial services business may lead to lower profit in the unit next year, but this is insignificant compared to the overall group operating profit. 

Investors took the opportunity to book profits after a reasonable run from March lows, and shares were down 2% on Thursday. For Sainsbury’s to revisit 52-week highs, one would expect improvement in the general merchandise business.

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