Profits at UK supermarket chain Sainsbury’s have slumped by nearly a quarter, in yet another setback to the firm’s fight to keep up with rivals Tesco and Asda.
All attention is now on Sainsbury’s new chief executive, Sir Peter Davis. He hopes that a fresh strategy with a strong streak of e-commerce can revive the grocery chain, which has been perceived as being less innovative than its competiters.
Sir Peter is betting on further expansion, promising to create 5,000 jobs this year alone. The jobs will be created both through the construction of 13 new stores and the build up of the group’s e-commerce activities, Sir Peter said.
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Hoping to mimic Tesco’s success, Sir Peter wants to speed up the roll-out of Sainsbury’s internet-based home shopping services, dubbed “Sainsbury’s To You”. The service is currently available from nine stores only, but will be expanded to cover 60% of customers by the end of this year.
The retailer also wants to set up a new food and drink web portal called Taste For Life, to be launched in June.
The competition will not be fought over prices, though. Sir Peter said Sainsbury’s would “always be price competitive”, but would not enter into a price war.
‘Arresting the decline’
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By GlobalDataProfits at Sainsbury’s were down sharply from last year’s £756m to £580m this time – a drop of 23.2%. Sainsbury, once the top performer in the UK grocery industry, has slipped behind its rivals Tesco and Asda which are considered to be more innovative and more responsive to their customers’ needs.
Sir Peter said that the firm had now to concentrate “on arresting the decline in Sainsbury’s supermarkets”. “We are working hard to re-establish ourselves as the UK’s favourite food retailer by making the Sainsbury’s experience special again for customers and colleagues”, he added.
Sir Peter warned shareholders that a full recovery could still be three years away and would be an expensive process. The task ahead is huge. Sainsbury’s has comprehensively lost its place as Britain’s top grocery retailer to Tesco, and has trouble to keep up with fast-rising rival Asda.
Diminished expectations
The results are in line with expectations of City analysts, which were considerably lowered by a string of warnings by Sainsbury managers that results could be poor.
When Sir Peter took over from Dino Adriano, he warned that profits were likely to be towards the lower end of expectations between £560m and £610m.
Sales are up, by 6.3% to £17.4bn, but as profits are collapsing the firm acknowledged that it had to focus at is badly performing supermarket business.
Its chain of Homebase DIY jobs is doing better, but only slightly, with operating profit down by a mere 13.4% to £64.6m.
Dividends unchanged
Dividend payments remain unchanged at 14.32 pence.
Sir Peter joined Sainsbury’s three months ago. To the majority of Sainsbury’s customers he will be best known as “the man from the Pru”, featuring in television commercial in his previous job as chief executive of the Prudential insurance company.
The company runs 423 supermarkets in the UK, 287 Homebase DIY stores and 174 stores in the US-based Shaws/Star chain. The firm also runs a UK telephone banking operation and a string of 95 super markets in Egypt.
Sainsbury employs 178,000 people.
