Week Ahead: Aldi and Lidl tightening the screw on Sainsbury’s as retailers fight to retain price-wary customers
The supermarket giant is set to report a fall in annual pre-tax profits this week, posting up to £690 million, down from £730 million last year.
According to the latest Kantar survey, Sainsbury’s reported a strong 12-week sales growth of 12 per cent at the end of March, but fell short of rivals Aldi and Lidl. The discounters are gaining market share as the cost of living crisis pushes food price growth to it’s fastest level in 45 years, at 19.2 per cent.
Retailers have been battling it out to retain customers hit by inflation. The relaunch of Sainsbury’s Nectar card, which now offers customers lower prices on 300 items, represents an attempt to gain ground back on its low-cost competitors.
Sainsbury’s shares rise as Argos thrives
Attempting to win and retain customers during high prices, Asda looked to get in on the card action and launched a new loyalty scheme over the summer.
Michael Hewson, chief market analyst at CMC Markets UK says that despite fierce competition, Sainsbury’s has maintained a reasonable performance since the dramatic lows of October, which saw a drop in shares of 40 per cent; an all-time low.
The company’s fortunes improved over the Christmas period, with grocery sales accelerating to 7.1 per cent. The Argos business proved particularly valuable as shoppers opted to avoid the “strike-ridden” Royal Mail and do their Christmas shopping in one go.
In January, wholesaler’s Bestway Group took a 3.45 per cent stake in the business, whilst suggesting that they may increase their stake. This saw a surge in Sainsbury’s share price, hitting its highest levels in a year.
Obstacles to a bid still remain high, as Bestway must convince the Qatar Investment Authority and Daniel Kretinsky’s Vesa Investment fund – the other two major shareholders – that they are able to take the business forward.
Ultimately, guidance for a full-year underlying profit has been kept unchanged at between £630m to £690m, despite the ‘headwinds’ of price and margin pressures.