Sainsbury’s chief executive Justin King today (16 June) cautioned that consumer confidence in the UK remained weak and warned next week’s Budget could dampen sentiment still further.
Speaking to analysts after Sainsbury’s published its first-quarter trading update, King said he was “more cautious” on the economy than his counterparts at Tesco, who yesterday spoke of a “steady consumer recovery” in the UK.
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King said consumer confidence had worsened since a “bounciness” in sentiment between just before Christmas and when the UK General Election was called in April.
The Sainsbury’s chief executive said consumers had “built in” what could emerge from next week’s Budget into how they shopped but insisted: “The reality is still yet to hit. Whatever the tax rises are, they will impact on household budgets.”
He added: “We’re more cautious. Consumers have seen what’s coming and that’s reflected in their sentiment. The monthly cycle remains significant; spending more when they get paid and holding back when they don’t. I think it’s right to be cautious.”
King said there had been “no indication coming our way” that the UK government would increase VAT and he argued that questions over whether the tax should go up was for policy-makers to decide whether the economy could “cope with another 1-1.5% of self-inflicted inflation”.
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By GlobalData“VAT will be felt like inflation. If, let’s say, 17.5% goes to 20%, that’s the equivalent in total retail terms of something north of 1% inflation. Inflation tends to cause consumers starting to modify what they buy to dial that inflation out of their shopping basket,” King said.
With fuel costs high, consumers are behaving in a similar way to how they were when food inflation was higher around 12-18 months ago, King argued.
“In a way, they are doing precisely the same thing as they were when food inflation was 5-6% a year or so ago,” King said. “Buying more promotions, using more vouchers, buying [Sainsbury’s entry own-label range] Basics where that will suit. They are still dialling out a couple of points of inflation albeit that in food that inflation isn’t actually there,” King said.
King said Sainsbury’s convenience stores were performing “marginally ahead” of the retailer’s other store formats amid consumer concern over spending.
“We’re seeing a dynamic amongst customers more generally of shopping more frequently, topping up and eking out their weekly and monthly budgets,” King said. “Our convenience estate is doing well with that as a context.”
The Sainsbury’s boss also said higher fuel costs could be forcing consumers to shop at convenience stores, even if prices in those outlets were higher. At Sainsbury’s convenience stores, prices were around 5% higher than a supermarket, King revealed.
“If it costs you that much more to run your car, the fact that your local shop – which is the case for ourselves and Tesco – is a little bit more expensive may not be much of an issue if it’s saving you a ten-mile drive to a superstore,” he said.
Sainsbury’s is looking to beef up the number of convenience stores it runs but King admitted the company had only opened one outlet during the quarter.
However, he added: “The weight of our openings are in the autumn. We’re going at about five a week by the time we get to September.”
Earlier today, King said Sainsbury’s had performed “ahead of the market” during the quarter as it reported a 1.1% rise in like-for-like sales, excluding fuel but including VAT, for the 12 weeks to 12 June.
Yesterday, Tesco, the UK’s largest grocer, reported a 0.1% rise in like-for-like sales excluding fuel and adjusted for VAT for the 13 weeks to 30 May.
Speaking to analysts, King said Sainsbury’s like-for-like sales, excluding fuel and VAT, grew by 0.3%.
