Sainsbury’s slumps into red, to cut divi

Review showed 25 per cent of the company's stores under-used space. Picture: JP
Review showed 25 per cent of the company's stores under-used space. Picture: JP
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SAINSBURY’s is to cut its ­dividend and slash £500 million off its cost base over the next three years to help fund price promotions, the UK’s third biggest supermarket operator said on Wednesday.

Money will also be freed up by reducing the number of new big stores the group opens in a bid to tackle sweeping price-cutting programmes at rivals Morrisons and Asda, and the rise of the discounters, Lidl and Aldi.

Mike Coupe, who took over from Justin King as Sainsbury’s chief executive last summer, said the shake-up followed a review showing 25 per cent of its stores have under-used space.

He said over the next few years this would be used to expand the retailer’s non-food offer and be given over to in-store concession partnerships.

It came as the group posted a £290m bottom-line interim pre-tax loss after writing down the value of land it no longer aims to develop, while underlying profits fell 6.3 per cent to £375m.

Coupe, formerly commercial director at Sainsbury’s – which is 26 per cent owned by the Qatari Investment Authority – said he expected tough trading in the sector to continue for a few more years.

“We are facing a once-in-a-generation combination of cyclical and structural change in the industry,” he said. The group held the interim dividend at 5p, but said the full-year payout was likely to be lower than last year’s 17.3p. Shares closed down 3p at 266.1p.

Sainsbury’s said: “The grocery sector is undergoing structural change as customers shop more frequently, using online, convenience and discount channels more.

“We expect supermarket like-for-like sales in the sector to be negative for the next few years, but we have robust plans to address this challenge.”

Part of the response will be to reduce capital spending to £500m-£550m a year over the next three years, down from £888m. It plans to open two new convenience stores a week over the next few years, with only eight new big supermarket outlets planned between now and the 2017-18 financial year.

The group, which has 594 supermarkets and 660 Sainsbury’s Locals, has 17 per cent UK market share, and an 8 per cent slice of the food retailing market north of the Border.

Interim results showed the convenience arm grew sales 17 per cent to more than £1bn, while online grocery sales were ahead 9 per cent. Retail operating profits fell 11.8 per cent to £388m.

Phil Dorrell, director of retail consultancy Retail Remedy, said the results were “marginally less awful than Tesco’s”, the latter ensnared in an accounting scandal. “There is no existential crisis at Sainsbury’s, but its once distinctive ‘Price Match’ pledge has lost its edge as it bleeds sales to the discounters and the price-cutting efforts at Asda and Morrisons,” he said.

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