Opinion: A Christmas turkey for Sainsbury’s food sales?

If the overwhelmingly positive tone of its messaging to journalists this morning is anything to go by, the answer is ‘yes’.

Sainsbury’s highlighted a record Christmas week, when it registered 30m transactions across its grocery business.

During the wider third quarter, sales of Taste the Difference party food were up 50% and the “typical” Christmas basket was 14% cheaper for shoppers than it was two years ago as investments in price came to the fore.

More crucially, like-for-like sales inched, slightly unexpectedly, into positive territory for the first time in a year.

On the face of things, it represents a solid performance – pushing the share price up 6.4% to 275.3p by 9am this morning – but the quarter might not be as “impressive” as chief executive Coupe suggests.

“The lack of growth in food sales represents a fly in the Sainsbury’s ointment and must be a cause for some concern”

The 0.1% growth within the core Sainsbury’s business – discounting the 4% like-for-like uplift posted by Argos – was driven not by groceries, but by sales of Tu clothing and general merchandise, which climbed 10% and 3% respectively.

Interim finance boss Ed Barker confirmed to Retail Week that food revenues were in “slightly negative” territory for the period, compared to last Christmas.

Although Messrs Coupe and Barker didn’t admit as much, the lack of growth in food sales represents a fly in the Sainsbury’s ointment and must be a cause for some concern.

Trading up

Historically, Sainsbury’s has been the big four grocer with the best quality perception.

Equally historically, Christmas has been a time when shoppers seek to treat themselves and trade up, temporarily ditching regular haunts such as Asda, Morrisons, Aldi and Lidl to spend a bit more cash on what are perceived to be better groceries.

But the upbeat noises coming from Morrisons and Aldi earlier this week prove that Sainsbury’s nearest rivals are closing that quality gap.

Morrisons hailed the impact of its Best premium range en route to registering a consensus-busting 2.9% jump in like-for-like sales over Christmas.

And Aldi reserved similar praise for its Specially Selected lines, which drove “strongly positive” like-for-likes and a 15% hike in total sales during December.

As Retail Remedy partner Phil Dorrell puts it: “Taste The Difference is still the golden child of grocery sales, but our feeling is it has lacked product development and allowed Morrisons and notably Aldi to encroach into this profitable category.”

“With Taste the Difference in its armoury, Sainsbury’s should have been well-placed to gobble up a bigger slice of the Christmas pie. But it didn’t”

If the latest data from Kantar and Nielsen is anything to go by, grocery sales boomed in December.

With Taste the Difference in its armoury, Sainsbury’s should have been well-placed to gobble up a bigger slice of that pie. But it didn’t.

Perhaps it was that reality sinking in that caused the easing of Sainsbury’s share price back to 267.6p by 1pm.

Promotional impact

In fairness to Sainsbury’s, a noticeable decrease in promotions over Christmas probably played some part in denting food sales.

Last year, the grocer redirected investment away from multi-buys and price-matching into everyday low prices.

As a result, the proportion of groceries sold on promotion fell to 26% during the quarter, compared to 31% the previous year.

Dorrell suggests Sainsbury’s “may now be regretting” the decision to turn away from multibuys at a “high-volume and highly competitive time of year.”

“Last year, the grocer redirected investment away from multibuys and price-matching into everyday low prices”

He observes: “While David Potts this week celebrates finding Morrisons’ mojo, Coupe is left wondering if Sainsbury’s mojo was left behind with the promotional calendar.”

Yet Coupe remains confident and defiant in equal measure.

He maintains Sainsbury’s enjoyed “pretty pleasing” volume growth in “the categories we want to be great in”, such as fresh, and insists he is “changing the shape of the business” to help it grow in areas beyond grocery.

Acknowledging the fact that some of Sainsbury’s closest competitors have started to usurp its like-for-like sales line, Coupe states: “This is a marathon, not a sprint. Don’t judge us on any individual quarter, but judge us in the long term.”

As Morrisons, Tesco and Aldi rapidly gain ground, Sainsbury’s has plenty to ponder to keep its core grocery offer ahead of the chasing pack.