Sainsbury’s has announced a 17.9% drop in first half profits and a dip in like-for-like sales, although its convenience store business recorded double digit sales growth.
Pre-tax profit fell to £308m for the 28 weeks to 26 September 2015, down from £375m in the same period last year, while like-for-like sales excluding fuel dropped 1.6%.
The group said supermarket sales declined just over 2%, driven by food deflation, lower like-for-like volumes and customers shopping across multiple channels.
But its convenience stores delivered sales growth of nearly 11%, with 37 new Sainsbury’s Local stores opening in the period, taking the total to 741 stores.
It is trialling new formats in six supermarkets and its micro convenience store layout in response to changing customer shopping missions.
Chief executive Mike Coupe said: “We are making good progress against the strategy we outlined last November. We are delivering volume and transaction growth as customers value our quality improvements and our clearer, simpler message of lower regular prices.
“We continue to run the business efficiently and our cost savings programme is ahead of plan. We now expect savings of around £225m by the end of this financial year and we are on track to deliver our target of £500m cost savings over the next three years.”
David Gray, retail analyst at Planet Retail, said: “As expected, this morning Sainsbury’s reported a sharp drop in underlying pre-tax profits as price reduction investments begin to bite. With food price deflation now entrenched, and discounters growing market share, mainstream operators like Sainsbury’s must face up to the harsh realities – invest in lower prices or lose out to cut-price rivals. With the foundations of a UK food retail margin reset now laid, attention is very much on how retailers intend to rebuild their respective businesses.
“Sainsbury’s has been very transparent regarding adapting its formats to the changing retail paradigm – trialling a mini c-store concept and six future-format outlets. The former provides a potential - if somewhat uncertain - growth opportunity, especially considering the previous Fresh Kitchen debacle. The latter may drive footfall into larger stores through layout changes, enhanced checkout options and by adding third party concessions.”