Sainsbury’s CEO Justin King was today (23 March) pessimistic about the chances of any improvement in UK consumer confidence in the near future.
Speaking after the company’s fourth-quarter trading update, King said that he expects the trading environment to “remain tough” and that there are “no signs that the pressures consumers are currently under will ease”.
Go deeper with GlobalData
“There’s no good news on the horizon for customers,” King said. “Hopefully what today’s Budget will do is confirm there’s no further bad news.” The Sainsbury’s chief added that he wanted the UK Budget to focus on “steadying the ship and confidence for the future”.
King emphasised his belief that, while consumers are currently “very downbeat”, they have “already prepared themselves for the bad news that is coming” in terms tax increases and job cuts, and have changed their shopping habits accordingly.
The retailer recorded a slowdown in sales during the fourth quarter with like-for-like sales increasing 1% on a reported basis. King, however, admitted that like-for-like sales actually fell between 0.5-1% once the impact of VAT and store extensions was removed.
King said Sainsbury’s “would have expected to have grown faster in this quarter than we actually have” but added that the retailer had “grown faster than the market”. He said that the results reflected “quite a significant step down [in consumer spending] by customers”.
How well do you really know your competitors?
Access the most comprehensive Company Profiles on the market, powered by GlobalData. Save hours of research. Gain competitive edge.
Thank you!
Your download email will arrive shortly
Not ready to buy yet? Download a free sample
We are confident about the unique quality of our Company Profiles. However, we want you to make the most beneficial decision for your business, so we offer a free sample that you can download by submitting the below form
By GlobalDataHe said that the retailer had seen a “normal January”, with customers taking more of a “budgetary approach” following Christmas, but saw this behaviour continue into February, a shift he described as “unusual”, as normally Sainsbury’s would expect a “slight tick back up” in consumer activity during February.
Speaking about this shift, he said: “If I was a guessing man, I’d say we’ll see that in March”.
One trend Sainsbury’s claimed to have noticed is that customers are buying one less item in their weekly shop and coming back into the store more often.
However, King highlighted the positives around this shift, including less waste, an increased focus on fresh food and cooking from scratch. “It plays to our strengths – of fresh food, cooking,” King said. “These are the things people are focusing on to save money, and these are right up Sainsbury’s street. So in the long-term, we think these are quite good trends”.
UK retailers have attracted considerable criticism of late for raising food prices ahead of input cost inflation and then using promotions as tools to attract consumers. However, King rebuffed these allegations. According to the Sainsbury’s CEO, branded manufacturers have hiked prices in anticipation of increased commodity costs. However, when higher input costs have failed to come in as fast or as much as expected, manufacturers have then been forced to offer discounts and promotions to compete with private label products, which have not risen in price as significantly. This, King maintained, is the chief reason why UK promotional levels currently stand at around 30%.
He told just-food that: “On the whole branded suppliers, and it really is a branded manufacturer issue, have been very aggressively trying to raise their prices, often well ahead of that that’s justified by the real change in commodity prices. And the proof of that is very clear,” he said, referring to the much higher levels of promotion that the industry is seeing.
Shares in Sainsbury’s were down 5.93% to 333.3p a share at 13:25 GMT today.
