Sainsbury's Attributed Christmas Success to Competitive Pricing and Product Range
Sainsbury's celebrates Christmas gains with strong Q3 performance, crediting its investment in value and own-brand ranges for driving grocery volume sales increases
Sainsbury’s has declared its superior performance compared to many of its competitors during the essential holiday season, highlighting its value offering and introduction of new products as key factors in capturing sales volume from rivals.
The UK's second largest supermarket reported a 9.3% increase in grocery sales for the quarter ending on January 6th, attributing the growth to gaining market share from its competitors. Additionally, the supermarket saw an 8.6% increase in like-for-like sales during the four-week Christmas period.
According to Kantar Worldpanel data, the supermarket is the only one offering a full range of products, including clothing, fuel, and more, that experienced an increase in sales volume. Discounters Aldi and Lidl, which focus mainly on groceries, also saw growth in grocery sales volume for the quarter, as shown in the "Grocery Volume Change" chart, while Tesco, Asda, and Morrisons had a decline in volume sales.
Source: Sainsbury’s/Kantar Worldpanel
In addition, the "Net Volume Switching" chart below, based on Nielsen data, illustrates that Sainsbury’s volume growth during the third quarter was mainly attributed to acquiring volume from Asda, Tesco, and Aldi, in that sequence.
Following the release of the results, J Sainsbury plc CEO Simon Roberts told analysts that the company's customers had positively responded to its investment in providing value across its grocery range. The supermarket had revealed in April of the previous year that it had allocated £560m to keeping prices low over the preceding two years. Roberts stated, "As I’ve always said, our job was to improve our value position to be more competitive. And that’s exactly what has happened over the past year."
Source: Sainsbury’s/Nielsen
"We aim to offer the best value to our customers, rather than simply being the cheapest in the market. As we reflect on the upcoming year, we believe we have made a significant investment in delivering value to our customers,” he stated.
According to YouGov’s BrandIndex, which assesses consumer perception and sentiment towards brands, Sainsbury’s was tied with Morrisons for the sixth position in terms of value perception among consumers, with a net value score of 16 in the four weeks leading up to January 9th. This places Sainsbury’s behind Aldi (53), Lidl (49), Tesco (26), Asda (25), and Iceland (21) in terms of consumer value perception.
The supermarket's own brand ranges showed strong performance, with an overall sales growth of 10% year on year. The entry price product range was the fastest growing sub-brand, demonstrating the brand's success in "winning the basket" through competitive pricing. According to Roberts, the Taste the Difference range experienced the fastest growth, with a 13% year on year increase in sales. Furthermore, the premium range now has the largest premium own label participation compared to other full choice grocers in the UK.
Pricing and promotion
Roberts also mentioned that during the Christmas period, customers showed a positive response to its Nectar Prices loyalty scheme: "It really provided customers with incentives to shop with us, and you can see from our sales performance... how much we have exceeded the market. Our sales volume is nearing mid single digit growth, and Nectar Price is playing a significant role in driving that performance for us."
Sainsbury's chief financial officer Bláthnaid Bergin emphasized the importance of the supermarket's historic investment in pricing for the success in the third quarter, stating, "We have done the majority of the heavy lifting on price, but we will remain vigilant on pricing to ensure we continue to offer value compared to our competitors."
Roberts believes that Sainsbury's has effectively implemented its 'Food First' strategy, particularly in terms of pricing and product ranges. He notes that the market is behaving 'rationally', with consumers prioritizing value, and predicts that this trend will continue into 2024: "Value will always be at the forefront as we enter a new year."
The supermarket's online sales, which matched those of other leading supermarkets, were attributed by Roberts to the company's investment in delivering a high-quality consumer experience. Though the supermarket's grocery sales were strong, sales for clothing and general merchandise categories decreased. Clothing sales were down 1.9% for the quarter and 6% during the Christmas period. General merchandise sales (excluding the closure of Argos stores in the Republic of Ireland) were at 1.5% for the quarter and -1.3% over the Christmas period.
According to Charlie Huggins, manager of the quality shares portfolio at Wealth Club, the weaker clothing and GM sales reflect the cautiousness of consumers despite falling inflation. He believes that the supermarket sector is highly competitive and the UK consumer is still facing challenges. In addition, he notes that the weaker clothing and General Merchandise sales indicate a sense of caution in consumer behavior.
Regarding the clothing market, Roberts predicts that it will continue to be heavily promotional and susceptible to external factors such as weather. He acknowledges the need to adapt to a more promotional market and improve their product ranges, stating that they are already working on these improvements and have seen progress in the quarter.
Due to the strong performance, the supermarket is reaffirming its full-year profit guidance. The strong performance in groceries offset the weaker performance from Argos, especially in a highly competitive general merchandise market and against a strong Christmas performance last year.
