SAINSBURY’S will pile more pressure on larger rival Tesco this week, with the supermarket chain tipped to deliver a rise in first-half profits on the back of strong demand for its own-brand food and clothing.
Sainsbury’s said last month that its own ranges, such as its Taste the Difference offering, have been growing at twice the rate of branded food, while chief executive Justin King said its fashion ranges have also proved popular with cost-conscious shoppers.
Celebrity stylist Gok Wan recently unveiled his latest Tu range of clothing for Sainsbury’s stores, his tenth collection since he started working with the grocer two years ago, and Wednesday’s figures will provide an opportunity for the supermarket to show whether it can succeed in an arena where high-street stalwart Marks & Spencer is struggling.
Under pressure from the supermarkets and discount fashion chain Primark, M&S last week revealed a 1.3 per cent drop in general merchandise sales for the second quarter, although that was an improvement on the 1.6 per cent slide seen in the first three months of the year.
While Tesco’s share of the grocery market has been slipping as discount retailers Aldi and Lidl continue to make inroads, Sainsbury’s was able to shrug off the competition in the second quarter with a better-than-expected 2 per cent rise in like-for-like sales, boosted by strong demand for its own-brand products.
Smaller rival Morrisons saw its underlying takings fall 2.4 per cent in the three months to the start of November, while Tesco reported flat sales in its second quarter ending 24 August.
Mike Dennis, a food retail analyst at Cantor, said: “We believe that, despite the slower industry sales growth going into this autumn, the relative sales outperformance at Sainsbury’s is set to continue.”
The broker has pencilled in an underlying pre-tax profit of £400 million for the first half, up from £373m a year ago and ahead of consensus City forecasts of £392m.
Figures from research group Nielsen showed the firm overtook Asda last month to become the UK’s second-largest supermarket for the first time in a decade, with a market share of 16.6 per cent for the 12 weeks to 13 October, compared with 16.4 per cent at Asda, although it still lagged behind Tesco, which commands 29.5 per cent of the sector.
As competition in the sector hots up, Sainsbury’s is taking the battle into the courtroom, seeking a judicial review against a ruling by the Advertising Standards Authority after the watchdog rejected its complaint over Tesco’s Price Promise campaign.
Sainsbury’s is also growing its Edinburgh-based financial services arm, which was created in 1997 as a joint venture with Bank of Scotland, now part of the Lloyds Banking Group.
In May, the retailer said it was paying Lloyds £248m to take full control of Sainsbury’s Bank, with the deal expected to be completed in January, and it recently unveiled plans to move into a larger head office in the capital, creating about 70 jobs.