Opinion: Sainsbury’s focus on quality and value pays off as sales advance

So it is proving to be. Sainsbury’s fourth-quarter trading statement revealed that like-for-likes had entered positive territory for the first time in two years – although, at 0.1%, only just.

It was the latest sign, following some more encouraging figures in recent months from Morrisons and Tesco, that the big grocers may at last be adapting more successfully to the shifts in the food retail landscape.

Broker Bernstein observed “a slight change of wording from management in its quarterly releases” over the last while. Conditions have gone from being “challenging” to simply “competitive”.

JS deserves credit for how it has navigated the changes in food retail. The most recent Kantar data, for instance, showed it had notched up the longest run of sales growth of any of the big four grocers in three years.

Sainsbury’s has responded to the value environment with a simpler trading stance weighted towards lower everyday prices.

Multibuys, which many consumers dislike and distrust, are being phased out and in the most recent quarter the proportion of product on promotion at Sainsbury’s was reduced to 28%.

Innovative aspirations

At the same time, Sainsbury’s has played to its strong reputation for food quality and innovation. Products such as boodles – butternut squash noodles – were said to be “proving extremely popular with customers”.

And lines such as sprouting grain boule (a type of bread, since you ask) are apparently appealing to shoppers who traditionally try to eat healthily after the Christmas blow-out.

Despite the encouraging update, Sainsbury’s shares – which are close to a year-high – showed little immediate change.

“As Friday’s deadline for submission of offers looms, nobody knows whether Sainsbury’s will proceed and, if it does, whether it will win out against counter-bidder Steinhoff”

George MacDonald

Partly that was because the improvement, while welcome, did not prompt significant change to earnings expectations.

But the main reason was the elephant in the room to which Sainsbury’s made no reference – its potential bid for Argos. As Friday’s deadline for submission of offers looms, nobody knows whether Sainsbury’s will proceed and, if it does, whether it will win out against counter-bidder Steinhoff.

Only once that becomes clear are Sainsbury’s investors likely to jump one way or another.