Sainsbury's unscathed in customer battle
Competition in the food market has led to a vicious price war but J Sainsbury, about to release its half-year results, claims to be unscathed in the battle for customers.
In a trading statement last month, Sainsbury’s reported like for like sales for the second quarter to October 2001 were up 6%. In the US, the company expects its Shaw’s stores will show like-for-like growth of 5% for the quarter.
Chief executive Peter Davis told analysts the company had not seen the slowdown in food sales reported by government in September.
In September, Sainsbury’s joined the price war by announcing cuts worth Pounds 100m. Rival Tesco said it was shaving Pounds 100m off the costs of 3,500 of its products and Asda promised to invest Pounds 200m into lowering its prices.
Davis admitted: ‘We felt that (the market) was likely to become more competitive and customers would be starting to cut back.
‘In this second half, we are enhancing our customer offer by investing a further Pounds 100m in pricing. Our Making life taste better for less campaign (starring Jamie Oliver) offers significant reductions in price and a strong range of targeted promotions.’
The chief executive told analysts that Sainsbury intends to ‘keep pace’ with its rivals because ‘we can’t afford to drift.’
The rivalry between supermarket giants is strong. Asda, now owned by US retailer Wal-Mart, claims to be the cheapest. But Tesco says its prices are level with Asda, 14% cheaper than Safeway and 12% cheaper than Sainsbury.
Sainsbury’s ACCA-qualified finance director Roger Matthews championed the company’s cost-cutting program at the presentation of its preliminary results.
He said: ‘The implementation of this programme will achieve a longer-term competitive cost structure and deliver the targeted Pounds 600m per annum cost savings.’
Matthews added that the company is targeting cost savings of Pounds 150m, which would require ‘substantial additional capital expenditure’, revenue costs and exceptional operating costs.
Although the Davis remains confident the company is on target to achieve its goals, market watchers are not as upbeat.
Resources & Whitepapers
Accounting Software The power of customisation in accounting systems
In October, the government reported a sharp slowdown in food sales for September. And retail consultancy Verdict warned price wars would increase stress on the company’s already pressured margins. Some observers have also questioned the retailer’s plans to spend #1bn on improvements to store portfolio, saying it does not fit in with the current retail environment.
Links
Sainsbury’s outsources finance activities