Comment: Sainsbury’s shows glory days are over

IT HAS become clear with each set of supermarket trading results in recent years that the sector is enduring painful systemic change on top of a cyclical trading downturn. One day we will get through austerity, but will consumers’ appetite to shop at the supermarket discounters, as well as online, locally and more frequently, ever really disappear for good? Doubtful.

Sainsbury’s near-15 per cent slide in annual profits, its first fall in a decade, would have been shocking a few years back. But alongside similar pressures being faced by big rivals such as Tesco and Morrisons, it really is now just becoming par for the course.

Like its rivals, including Asda, Sainsbury’s has responded with heavy price-cutting promotions that have eaten into profit margins.

But this appears to have had little impact. New data from Worldpanel Kantar yesterday showed that the “big four” all suffered sales declines in the three months to 26 April.

Similarly, we will move out of the food deflationary environment at some juncture. But that is not likely to reverse what seems a sociological and technological change in the way people shop for their food.

This doesn’t mean that a leaner, less expansionist supermarket industry cannot still be highly profitable. Witness Sainsbury’s £681 million underlying profit despite all its problems. We should all have such “problems”.

It is not really a case of managing decline in an industry, either. Which industry is as naturally defensive and resilient as food?

But it is very likely the glory days of the food retailing sector are over, and solid will become the new stellar. No more endless square foot expansion, no more attempts to plant the company flag around the globe.

Look at Tesco under new boss “Drastic” Dave Lewis. Higher criteria for new shops to be opened, closure of under-performing units, focusing on getting the main UK business right through small operational changes on the ground.

It is this sort of granular, unglamorous approach that is likely to become the new template for the chastened supermarket industry.

The food retailing majors will continue to make substantial sums of money. But just not as much, and with a somewhat less attractive stock market investment case.