Sainsbury’s is doubling down on its strategy to invest in price and cut promotions despite a 17.9% drop in first-half profits that triggered a 7%-plus share price fall.
First half pre-tax profits, which fell to £308m from £375m, were hit by price investments of £80m during the period - more than half its previously announced £150m price cutting programme.
The remaining £30m of that total will be invested in the second half of the year, but CEO Mike Coupe said Sainsbury’s action on price would not end there.
“We’ve invested a lot of money relative to the discounters and that price gap has come down,” he said. “But we also recognised there’s still work to be done and over the next period of time we’ll be thoughtfully investing in individual products and categories to close that gap further.”
Existing price cuts had concentrated on staples, but Coupe declined to elaborate where further price investment would be targeted citing confidentiality. “We’ll use our customer data on how best to make those investments,” he said.
As part of its efforts to concentrate on regular lower prices, Coupe said Sainsbury’s had cut its level of promotions from 35% to just over 30%. He said “around 90%” of the work to cut promotions had been achieved, but the programme still had “a little way to go”.
“If you’d asked me a year ago I’d have said getting promotions down to 30% is going some, but today a level in the high 20% range looks achievable,” he said.
Coupe added the sales effect of reducing promotions was difficult to split out, but that some of the reduced lines had sold well.
The new pricing position had helped drive transaction growth of 3% and volume growth of 1% during the first half, but like-for-like sales fell 1.6% primarily due to a 2% deflation effect.
Cutting promotions has had an impact on the bottom line and also helped accelerate Sainsbury’s £500m cost-efficiency drive, which exceeded expectations in the first half, with £115m of savings delivered. “We have improved on-shelf availability and demand is now more predictable, meaning we’ve been able to reduce waste,” Coupe said.
Despite the plunge in profits Sainsbury’s finance director John Rogers insisted Sainsbury’s was on the right track. “It’s been a resilient and robust performance,” he said. “If anything we’re slightly ahead of where we expected to be when we announced our strategy 12 months ago, although it is still a tough market.”