Sainsbury’s quarterly sales drop as UK consumers squeezed

By Paul Sandle

LONDON (Reuters) -Sainsbury’s warned the financial pressure on British shoppers would “only intensify” this year after it reported a 4% drop in underlying quarterly sales, driven by falling demand for general goods in its supermarkets and Argos stores.

With inflation at a 40-year high and rising, and consumers reining in spending, Britain’s second biggest supermarket said sales of food, drink and household supplies fell 2.4% over the 16 weeks to June 25, while general merchandise dropped by 11.2%.

Chief Executive Simon Roberts said Sainsbury’s understood how hard it was for millions of households right now.

“The pressure on household budgets will only intensify over the remainder of the year and I am very clear that doing the right thing for our customers and colleagues will remain at the very top of our agenda,” he said on Tuesday.

Sainsbury’s prices were not rising as quickly as they were at its rivals, he said, helped by a scheme to match discounter Aldi on 240 products, including the 20 that customers bought most often.

The results, described as in-line with expectations, followed a warning in June from market-leader Tesco that Britons were buying less and switching to cheaper products. Its underlying sales fell by 1.5%, while smaller rival Morrisons reported a slump of 6.4%.

Roberts said shoppers were switching to economy own-label products, but they were also trading up to premium ranges for special occasions such as the recent celebration of Queen Elizabeth’s 70-year reign.

Shares in Sainsbury’s, which have fallen 25% in the last 12 months, were trading up 1.3% as it stuck to its guidance.

British consumer confidence has plummeted as households struggle with the accelerating cost of living.

Wages are failing to keep pace with inflation that reached 9.1% in May and is heading for double digits. Food inflation is predicted to hit 15% this summer and 20% early next year, according to some forecasts.

Roberts said customer perception of Sainsbury’s value was improving.

But more of its sales come from general merchandise than its rivals due to its standalone Argos brand, increasing its exposure to pressure on consumers’ disposable income.

The decline in general merchandise was steeper in the first part of the quarter measured against a partial lockdown last year, but the drop had continued in recent weeks, with “big ticket” products particularly challenging.

Sainsbury’s maintained its profit guidance of 630 million pounds to 690 million pounds, down from 730 million pounds in 2021-22.

The company also said its chief financial officer Kevin O’Byrne would retire in March 2023 and would be succeeded by commercial and retail finance director Blathnaid Bergin.

($1 = 0.8256 pounds)

(Reporting by Paul Sandle; Editing by Kate Holton and Carmel Crimmins)