Supermarket woe as discounts hit festive sales

Ahead of Sainsbury's update on Wednesday, analysts at Shore Capital said its food and non-food operations were well set up for Christmas and the post peak time.

Ahead of Sainsbury's update on Wednesday, analysts at Shore Capital said its food and non-food operations were well set up for Christmas and the post peak time.

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THE embattled supermarket sector will be plunged into the spotlight this week as three of the big four are expected to unveil falling sales in the festive period amid fierce price-discounting.

Sainsbury’s is likely to be the most resilient performer, with same-floorspace sales expected to have dipped 0.7 per cent in the 14 weeks covering Christmas compared with a year ago.

However, Sainsbury’s trading update will be overshadowed by intense City interest about whether it will return to the fray after its recent revelation that it made a bid approach last November to Argos-owning Home Retail Group (HRG), Britain’s biggest household goods retailer, that was rebuffed.

Sainsbury’s has outlined what it sees as the strong benefits of a merger of the two businesses. These include cost-savings and cross-selling bet­ween food and hard goods, and the retailer will be quizzed as to whether it would go hostile if it cannot secure the agreement of the HRG board.

Britain’s second biggest sup­ermarket business did not disclose the value of its mooted cash-and-shares offer approach, but HRG, which also owns the Homebase DIY chain, is currently valued at about £1 billion compared with £800m before the bid was made public.

Muddying the takeover wat­ers, former Tesco boss Sir Terry Leahy is reported to be mulling a rival offer for HRG, with the backing of US buyout group Clayton Dubilier & Rice.

Ahead of Sainsbury’s update on Wednesday, analysts at Shore Capital said its food and non-food operations were “well set up for Christmas and the post peak time” compared with rivals such as Tesco and Morrisons, which also report sales updates this week.

The supermarket sector remains locked in a price war which sees major chains battle to maintain market share against discounters Aldi and Lidl. The grocery sector has seen prices fall for more than a year.

On Tuesday, struggling Morrisons, which has a 13 per cent market share in Scotland, is expected to unveil like-for-like sales off 2 per cent in the nine-week festive period, slightly better than a 2.6 per cent drop in its third quarter to 1 November.

In September, Bradford-based Morrisons announced the closure of 11 supermarkets, putting 900 jobs at risk, as it reported a 47 per cent slump in half-year profits. It has also agreed the sale of 140 M local convenience stores for around £25m, to concentrate on its larger supermarkets.

Shore Capital broker Clive Black said: “Closed stores, simplification and deflation amount to a veritable tidal wave of barriers to driving like-for-like sales forward for the UK superstore groups, but particularly so for Morrisons.”

Tesco is expected to show that it continues to battle falling sales when it posts a key Christmas trading update on Thursday as the group tries to revive its fortunes.

Analysts at Exane BNP Paribas expect the firm to post like-for-like sales down by 2.5 per cent over its six-week festive period compared to a year ago, reflecting concerns about the number of shoppers visiting its outlets and its level of discounting.

Last month, the country’s largest supermarket chain saw its sales fall 3.4 per cent in the 12 weeks to 6 December compared to a year earlier, while its market share fell to 28 per cent from 29.1 per cent a year earlier, according to research group Kantar Worldpanel.

Sainsbury’s was the only one of the major players to post a rise in the Kantar data, sales lifting 1.2 per cent over the quarter, while growing its market share to 16.7 per cent from 16.5 per cent a year earlier.

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