Sainsbury’s has reported a statutory pre-tax loss of £290m for the 28 weeks to 27 September 2014, as it warns the UK grocery market is changing faster than at any time in the past three decades.
Underlying profit before tax in the six-month period fell 6.3% to £375m, ahead of analyst expectations, but the retailer warned profitability would be “lower in the second half than the first half”, due to a wide-ranging strategic review announced today that would involve a £150m investment in price.
It reported a 2.1% drop in like-for-like sales, with CEO Mike Coupe declaring he expected “supermarket like-for-like sales in the sector to be negative for the next few years, but we have robust plans to address this challenge”.
He said the strategic review would “build on our strong values, differentiated offer of quality products and services, competitive value proposition, advantaged store portfolio, established convenience and online businesses, great colleague service and our unique understanding of our customers”.
After unveiling a new pricing strategy and ditching Tesco from its price-matching scheme Brand Match earlier this year, Sainbury’s said it planned to invest an additional £150m in price “focused in areas where our customers tell us price matters most”. It also said it planned to improve the quality of 3,000 own-label products.
“We will always be competitive on price versus our main supermarket peers. We will work in close partnership with suppliers to deliver value chain efficiencies which can be reinvested in price,” Coupe said.
As predicted, Sainsbury’s also confirmed it would cut back on store openings, opening 500,000 sq ft of space over the next two years, versus a previously stated 750,000 sq ft, followed by 350,000 sq ft in 2017/18. Over half of new space would be c-stores.
It also plans to pilot new store formats focused on “optimising range, layout and ease of shop to meet changing customer shopping patterns”. Over the next five years, 25% of its store portfolio would have “under-utilised space” that would be used to increase its non-food offer and concessions.
It would also make total operating cost savings of £500m over the next three years and reduce capital expenditure to between £500m and £550m per annum.
“The UK grocery market is changing faster than at any time in the past three decades,” Coupe said.
“We must evolve our business to meet the challenges this presents to ensure we continue to win for customers, colleagues and shareholders.
“Sainsbury’s is a great business. Our consistent outperformance of our main supermarket peers over the past five years is evidence of this.
“We are facing into a once-in-a-generation combination of cyclical and structural change in the industry, but I firmly believe that this strategy, building on our unique heritage and track record of success and delivered by the most experienced management team in retail, will focus and energise our business to the benefit of customers, colleagues and shareholders alike,” he added.
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