Opinion: Sainsbury’s cannot lose appetite for groceries

First, the supermarket giant lifted the lid on plans to convert 60 Argos stores into the digital format and to add 10 more mini Habitat shop-in-shops inside some of its larger Sainsbury’s sheds.

And days later, Sainsbury’s unveiled a partnership with US sportswear specialists Russell Athletic, as it made a play for a burgeoning athleisure market worth some £7bn in the UK.

The steps form part of Sainsbury’s boss Mike Coupe’s ambitious strategy to grow its footprint in clothing and general merchandise, following the £1.4bn acquisition of Home Retail Group last September.

Its so-called ‘supermarket of the future’ format, which features Argos and Habitat shop-in-shops, eBay collection desks and sushi stations, is the physical manifestation of the Sainsbury’s dream.

But amid that aggressive push into non-food, the retailer cannot lose its appetite for groceries – the cornerstone of its business.

Food for thought

When Sainsbury’s reveals its full-year results this week, much of the focus from the media and the City is likely once again to fall on plans for Argos – store closures, shop refits, scope for further integration, the joining up of head office expertise.

At 33 Holborn, the grocer’s attentions have seemingly shifted in the same direction as it continues to ramp up plans for Argos and Habitat.

“Performance in the second half of its financial year have highlighted the potential dangers of taking its eye off the grocery ball”

Yet performance in the second half of its financial year have highlighted the potential dangers of taking its eye off the grocery ball.

Although Sainsbury’s like-for-like sales rose 1% in the 15 weeks to January 7, that was driven by a 4% uplift at Argos.

Stripping out the impact of its prize acquisition, same-store sales in Sainsbury’s core business inched up just 0.1% – and even that was buoyed by sales of Tu clothing and general merchandise, which climbed 10% and 3% respectively.

Food revenues, by comparison, were in what the grocer called “slightly negative” territory.

It was a similar tale in its fourth quarter – the nine weeks to March 11 – when the combined group’s like-for-likes rose 0.3%, but slipped 0.5% when stripping out the impact of Argos’s growth.

Coupe maintained that he was “pleased” with that performance, but in a grocery market that is growing once again, should Sainsbury’s shareholders be expecting more?

After all, Tesco increased food like-for-likes 1.3% in the year to February 25, while an equally resurgent Morrisons enjoyed a 1.7% jump in its 2016/17 financial year.

While they battle it out with Sainsbury’s in the squeezed middle, Waitrose has proved resilient through its relentless focus on quality and provenance, with Aldi and Lidl’s rock-bottom prices continuing to woo shoppers at the other end of the scale.

Grocery fight

There is no doubt that Coupe and his senior leadership team should be applauded for their desire to expand beyond grocery and build a multi-sector, multichannel, forward-thinking retailer.

Coupe wants the success of the Argos purchase to be judged on long-term results and, in terms of future-proofing the business for growth, it is likely to prove a triumph.

But in the short term, Sainsbury’s must launch a counter-attack on its big four rivals to prevent them gobbling up its share of the grocery pie.