Grocer Sainsbury under pressure on Brexit costs

UK supermarket Sainsbury is struggling to keep up with supermarket rivals and discounters in a British grocery market under pressure from a Brexit-induced fall in the value of sterling.

Grocer Sainsbury under pressure on Brexit costs

Data from researcher Kantar Worldpanel showed that as well as lagging the growth of cut-price grocers Aldi and Lidl, Sainsbury’s food sales are also trailing rivals Tesco and Morrison supermarkets.

Amid tough competition, all of the UK’s major grocers have struggled to pass along higher costs stemming from a fall in sterling since the UK voted to leave the EU almost a year ago.

Sainsbury is “having to run harder to stand still in the supermarket business,” Clive Black, an analyst at Shore Capital, said.

While Sainsbury said the impact of Brexit remains uncertain, it’s helping suppliers improve their productivity and scrapping night shifts in hundreds of supermarkets to reduce costs.

The retailer, which previously announced a goal of cutting expenses by £1bn (€1.2bn) over six years, said it’s on track to deliver half of that reduction by the end of its current fiscal year.

“Complexity has crept into our business over the years,” chief financial officer Kevin O’Byrne said.

“We are trying to cut costs everywhere without impacting customer service,” he said.

The shares fell upto as 4.4% in London trading after Sainsbury said underlying pretax profit for the year to March 11 fell 1% to £581m. It was the third straight year of declines in pretax earnings, but was in line with the £580m average estimate of nine analysts.

Sainsbury was shielded somewhat by its acquisition of general-merchandise chain Argos last year, which initially drew investor scepticism. Without a £77m contribution from Argos, the company’s group profit would have fallen 16%. The grocer has added 59 Argos concessions in its stores.

“What began as a bolt-on has turned into a lifeboat,” John Ibbotson, director of consultancy Retail Vision, said.

The Kantar UK survey showed Tesco posted growth of 1.9% while Sainsbury grew by 1.7%, Asda grew by 0.8% and Morrison grew by 2.2%. Asda’s growth marked the first year-on-year sales rise since October 2014. The results were boosted by the timing of Easter, which fell later than normal this year.

  • Bloomberg and Reuters

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