Sainsbury’s has reported its first sales fall in nine years after like-for-likes excluding fuel tumbled 3.1% in the fourth quarter. We analyse the reaction from the City

“Much will be made of the first like-for-like sales decline for 36 quarters. But we feel that the run was destined to come to an end in a quarter marked by profound frugality from shoppers, volume declines in many categories, huge levels of couponing and the fact that even Sainsbury’s will have lost some shopping trips to the German discounters. The business is still in generally good shape and its outperformance of the big four competitors, in market share terms, remains a reassuring trend. A longer term worry is the spectre of a ‘price war’ that could disproportionately impact Sainsbury’s relatively thin margins. Another concern is Sainsbury’s hesitancy in embracing Click & Collect for grocery. It is clearly favoured by many shoppers and also tilts the economics of grocery ecommerce in a retailer’s favour.” Kantar Retail insights director Bryan Roberts,

“This trading update is in-line with our revised expectations and marks JS’s first negative trading update for 37 quarters.  However, this needs to be placed in context of last year when JS reported a very strong Q4 LFL up 3.6%, Easter and Mother’s Day are later this year and JS reduced on-line marketing spend while re-launching their website (+6% growth). This meant sales growth has slowed to the market average and the outcome was potentially going to be weaker. The Q1 trading should improve but that will also depend on the impact of price deflation on high volume lines (bread, milk, eggs).  However, the market outlook is for lower food price inflation and potentially more trading down to own label products. Sainsbury’s is well placed in own label quality. With the significant level of price investment in own label, we expect JS’s 20% price gap with brands to widen in 2014 albeit own label sales growth should be ahead of brands.” Cantor Fitzgerald analyst Mike Dennis

“Today’s results show that even the darling of the grocery sector is no longer insulated from the discount threat. Aldi and Lidl are morphing into credible grocery players by expanding their ranges and opening in more attractive locations, placing them in an enviable position when it comes to top-up shopping.  There are more ways to shop than ever, but at the same time people are putting fewer items in their basket. This puts a huge amount of strain on retailers like Sainsbury’s. Top line growth is no longer a given. Despite its main rivals stating their intentions to move further down the price spectrum, we expect Sainsbury’s to maintain its positioning as a premium mid-market player. We expect further innovation in food ranges – particularly in own label goods – as well as acceleration in the convenience and online sectors. There is no denying that Sainsbury’s must provide even better value to shoppers, but this has to be about more than just price.”  Planet Retail global research director Natalie Berg

“This decline is not as bad as it at first looks; the later timing of Easter and Mother’s Day, as well as some unseasonable weather, has naturally limited Sainsbury’s growth in Q4 vs. last year. Moreover, while Tesco, Asda and Morrisons have all consistently lost market share, Sainsbury’s has enjoyed a long period of outperformance. Sainsbury’s balanced positioning, via a convincing own-label, brand price match and Nectar Card membership, have combined with its convenience-led store strategy and online push, to drive strong market relevance, affording it some insulation, at least until now.

“With momentum now slowing though the question is where Sainsbury’s goes next, particularly in the wake of Morrisons announcing plans to invest £300m in price cuts this year, and Tesco and Asda intending to invest around £200m.  Sainsbury has declined to follow suit in today’s update.  The fact is that Sainsbury’s has the lowest margins of the Big Four, and therefore it will be most exposed if it engages battle in the pricing war.  A negative performance does certainly signal a weakening in its market authority, strengthening the argument that the prominence of the discounters is part of a structural shift in grocery, rather than a cyclical blip. However, although avoiding a commitment to pricing will likely undermine further short-term competitiveness, the Sainsbury’s brand is well placed for more sustained market traction, as consumer spending begins to pick to up.” Conlumino food & grocery analyst George Scott

“After last Thursday’s bombshell from Morrison’s, today’s Sainsbury’s Q4 trading update will get plenty of attention and although a 3.1% LFL sales decline was expected (given the tough “horsemeat” comp of +3.6% LFL a year ago), there is not much here for the normally ebullient Justin King to shout about on the 8.30am conf call…And growth of only 6% in Online Grocery sales certainly isn’t much to shout about, with Waitrose and Ocado evidently stealing Sainsbury’s customers, while Sainsbury’s overhaul their customer website and hold back marketing.” Independent analyst Nick Bubb

“LfL sales declined by -3.1% (ex fuel). This number was slightly below consensus by 0.4% and reflects the slow growth in the market and also the removal of certain revenue enhancing events from last year.  Despite the negative like for likes Sainsbury’s is maintaining market share, contrary to Tesco and Morrisons. The slow down for this quarter is caused by a tough comparative and a slowdown in the overall market.” Bernstein analyst Bruno Monteyne

Analysis: Are the good times over for Sainsbury's and the food sector?