Sainsbury’s delivered a mixed bag of a full-year results statement when it updated the market last week.

Pre-tax profits fell for the third consecutive year as the grocer continues to adapt to a challenging grocery market.

One of the ways it has sought to do that – purchasing Argos – has got off to a flying start.

Like-for-like sales at the general merchandise business jumped 4.1% and the roll-out of 250 Argos Digital stores into Sainsbury’s larger supermarkets will now be completed six months ahead of plan.

Yet revenues at the core grocery arm slipped 0.5%, with sales in supermarkets down 1.8%.

Following the supply tie-up Morrisons has struck with Amazon, and Tesco’s proposed £3.7bn takeover of Booker, it is almost inconceivable to think that Sainsbury’s is not exploring options for similar deals in an effort to reinvigorate its food business.

Room for more

Despite the acquisition of Argos last September, Sainsbury’s still has a strong enough balance sheet to pursue such opportunities.

The nature of the £1.4bn purchase meant that the grocer’s cash outlay was a fraction of that seven-figure sum, as it transferred £600m of loans acquired as part of the Argos deal into its banking unit. 

“With the foodservice market developing equally rapidly, it certainly wouldn’t be beyond the realms of possibility for Sainsbury’s to enter the bidding for troubled wholesaler Palmer & Harvey as it seeks a buyer”

While Sainsbury’s boss Mike Coupe was tight-lipped on the potential for further M&A activity when asked by Retail Week – “don’t get ahead of yourself”, he joked last week – tentative discussions about such a move are almost certain to be taking place behind the scenes.

Coupe admitted that Sainsbury’s is seriously considering expanding its fast-growing convenience business through the franchise model, meaning symbol groups such as Nisa and Costcutter could be on its radar.

But with the foodservice market developing equally rapidly, it certainly wouldn’t be beyond the realms of possibility for Sainsbury’s to enter the bidding for troubled wholesaler Palmer & Harvey as it seeks a buyer.

After all, as Coupe flagged regarding the purchase of Argos: “We bought it on the basis that we thought it would be good for us and we bought it because we thought it would accelerate our strategy to adapt our business to that fast-changing consumer environment.”

Would the acquisition of Nisa, Costcutter or Palmer & Harvey have a similar forward-thinking impact? Undoubtedly.

Would its shareholders agree with such a rationale at this particular time? Perhaps not.

Lesson from Tesco

For a warning, Sainsbury’s needs only look up the A1 to Welwyn Garden City at the revolt Tesco has faced from investors Schroders and Artisan Partners.

The market leader’s stakeholders are concerned at the timing of the deal, given that Tesco still has work to do to complete the turnaround of its core grocery business.

Sainsbury’s shareholders could voice similar reservations, with the supermarket giant in the midst of integrating the Argos and Habitat businesses and establishing those synergies.

That task has arguably already proved a distraction to the core food business, the performance of which presumably sparked the 5.3% drop in the Sainsbury’s share price between the close of markets last Tuesday – the eve of its full-year results – and the start of this week.

Whether or not its shareholders feel another big purchase would restore value, Sainsbury’s would be right to at least assess acquisition options.