Sainsbury’s to deliver food inflation update as Argos future could be settled
After Tesco hit back against fears of double-digit food inflation last week, supermarket rival Sainsbury’s is set to update the market this week. From the Iran war to the future of Argos, Felix Armstrong looks ahead to a landmark set of results due on Thursday.
Sainsbury’s spooked shoppers last week when it threatened people caught swapping premium eggs into cheaper boxes with arrest. The crackdown marked a swift end to Easter festivities.
While some saw the edict as heavy-handed, perhaps it also amounted to something deeper: a last-ditch effort to protect margins ahead of full-year results on Thursday from the UK’s second-biggest supermarket by market share.
Sainsbury’s is flying high, with an almost record share price and a resilient market share of 15.6 per cent which, still leagues below Tesco’s 28 per cent, is seemingly out of reach of closest competitor Asda.
The FTSE 100 grocer’s share price is up six per cent in the last month, to 355p on Monday, and has risen by more than 35 per cent in the last year.
Sainsbury’s impressed the market with its Christmas trading update, when it touted a 3.3 per cent growth in festive sales and a 3.9 per cent jump to £10bn in the three months to January.
The orange-liveried grocer managed to pinch a few places at the Christmas table from its competitors, shifting 20 per cent more turkeys than in the previous festive season.
In a fiercely competitive grocery market, Sainsbury’s will be plotting to grab further market share from its rivals throughout 2026, especially Asda, which is still grappling with a turnaround plan.
Double-digit food inflation drama
This time around, chief executive Simon Roberts will be speaking against an entirely different global economic backdrop after his Christmas triumph.
The effective closure of the Strait of Hormuz during the ongoing Iran war has stoked fears that food inflation could reach double figures in the UK this year.
Such warnings have turned food inflation into a hot political issue in Westminster and across the UK. In the City, investors are poised to weigh the implications for a vital sector, where consumers can be notoriously fickle.
So far, Roberts signalled that prices in his shops could rise later this year. He said food inflation won’t hit shoppers’ baskets until the summer. Industry analysts, reporters and consumers alike will be watching for any sign of a shift in that position.
Roberts could yet adopt Tesco boss Ken Murphy’s approach. The man in charge of the UK’s biggest retailer denied that any serious price rises or supply chain blockages are yet to occur in relation to the war.
Nonetheless, Murphy did call on the government to “help us keep prices low for customers”. Thursday will reveal if Roberts becomes the latest big-name industry boss to demand cuts to energy taxes, alongside counterparts at Marks & Spencer and Asda as well as Tesco.
Even if price rises do not materialise, Sainsbury’s will be wary of consumers cutting down on spending in reaction to fears around inflation – though it remains to be seen to what extent discretionary spending within the grocery market is significant for supermarkets to take a hit.
Life on the premium range
Like Tesco, who has doubled down on its challenge to the German discounters under Murphy’s leadership, Sainsbury’s is piling investment into its low-price ranges with its Nectar loyalty card and Aldi price match scheme.
While the grocer’s cheaper ranges may make it resilient from consumer spending cuts, Sainsbury’s is likely to talk up its high-end ‘Taste the Difference’ range.
It added 260 products to this range in the last three months of last year alone, and saw sales grow by 15 per cent. Tesco reported a similar boost to its ‘Finest’ range just last week.
The performance of Sainsbury’s non-food offering was already weakening in January. Sales of general merchandise and those within its Argos brand of sales each fell by one per cent.
City analysts expect that trend to continue. Aarin Chiekrie at Hargreaves Lansdown pointed to consumers cutting back in less essential areas.
“Given that these areas are more discretionary than food sales, the picture could get tougher in the coming year if oil prices remain elevated, squeezing consumers’ budgets,” he said.
Argos in the spotlight
And so Argos, the catalogue retailer snapped up by Sainsbury’s in 2016, could prove to be a dampener to Sainsbury’s results.
The retailer cut over 2,000 jobs and lost more than £200m in its latest financial year and Sainsbury’s had been mulling a sale of the brand before it pulled out of talks with Chinese retail giant JD.com.
Richard Hunter, an analyst at Interactive Investor, told Morning Wire that now would be the time for Sainsbury’s to kick off a new sales process, if it decided to cut its losses.
“This part of the business accounts for around 16 per cent of overall revenues. It’s been underperforming now for some considerable time, and I do wonder, from a strategic point of view, how much patience Sainsbury’s has got,” he said.
“It’s not completely beyond the imagination that they could just decide to draw a line in the sand.”