As Sainsbury’s upgraded its full-year profits to more than £1bn, chief executive Simon Roberts spoke about the consumer outlook heading into Christmas, what’s happening with the future of Argos, and the Budget.
The boss of the UK’s second largest supermarket was in a buoyant mood this morning, as Sainsbury’s announced it was upgrading its full year profits to more than a £1bn – despite all of the cost headwinds the retailer and the wider industry is facing.
Sales at the supermarket, excluding fuel, rose 5.2% in the 28 weeks to September 13, driven by a 5.3% jump in grocery and general merchandise and a 3.3% uptick in clothing. Underlying operating profits were also ahead of expectations at £504m – all before Sainsbury’s barrels into the all-important Christmas period.
Own-brand, Nectar Prices and a cost-of-living Christmas
Roberts says that helping customers with cost-of-living is its number one priority this Christmas, noting that the retailer has invested “over £1bn” in pricing since he became chief executive.
To that end, during the half, Roberts says Sainsbury’s has born the fruits of that investment, particularly in its more premium own-brand ranges like Taste the Difference, which saw sales grow 18%.
Sainsbury’s enjoyed a “strong” summer, which Roberts says was driven predominantly by its Nectar Prices and Aldi Price Match, which saw “customers saving an average of £14 on an £80 shop”.
The grocery giant has made Nectar Prices available on Smart Shop and online for Christmas, and he says that its focus on personalisation through Nectar360 is “really starting to work for us, ensuring customers can buy the products they love…and gives us a uniquely competitive advantage in this current economic climate”.
Despite all of this, Roberts acknowledges that customers will still undoubtedly be feeling the pinch this Christmas, and he believes that shoppers will still want to celebrate the festive period “without compromise.”
“We’re going into this Christmas with a very strong value proposition. Our value perceptions with customers have improved year on year. We’re the only grocer in the UK where that’s happening, and we’re growing market share as a result of that.
“We want to take that momentum into the Christmas period, and we’re absolutely focused on having the very best value we can, and the very best quality so that customers can celebrate without compromise”.
Black Friday Budget
Looking ahead to the Budget on November 26, and the chancellor’s speech yesterday (November 5) where Rachel Reeves refused to rule out tax rises, Roberts says Sainsbury’s has done everything it can to put its case forward against any further tax rises on the retail sector.
He blames the government’s 2024 Budget for keeping inflation so high throughout the year and says that has only intensified Sainsbury’s focus on “value for money and making sure that we’re inflating behind the market” in key categories like food and FMCG products.
“We’ve taken a lot of cost impacts this year,” he says. “National insurance costs were millions of pounds for our business, on top of other regulatory costs. We’ve been trying to contain those cost impacts, and what we don’t want to see [from the next Budget] is any further cost impacts on the industry.
“We’ve had the opportunity to make our cases clearly. We’ve engaged at a very senior level, as an industry, with government. There’s been an appetite from government to list to the concerns of the industry. It’s in the hands of the politicians now”.
Despite listing the costs heaped upon the business in the last 12 months, and urging the government not to hit Sainsbury’s with any further costs in the coming weeks, the grocer still returned over £400m to shareholders in the period, on top of its profit upgrade for the full year.
When asked if there was any “dichotomy” between warning about the cost headwinds of the Budget, and the returns to shareholders, Roberts insists Sainsbury’s is getting “the equation right for all of our stakeholders”.
“We’ve invested in the offer, we’ve invested in colleagues, and we’ve made the right strategic decisions for our business over the last five years, such as exiting from our banking business,” Roberts says.
“As a result of all of that, we’ve been able to balance what we need for our customers and our shareholders too”.
Black Friday goes early
Argos enjoyed a strong half, with sales jumping 2.3%. Roberts says that, after enduring a poor Summer 2024, Argos grew market share in the first half and has managed to clear a lot of unsold stock from last year to improve its margins.
“That meant we had to sell those products at much reduced prices and drove a lot of volume as we cleared those products through. And so we’ve now annualised that and we’re really encouraged with Argos’ performance in the second half of last year, and the first two quarters of this year.”
However, he did anticipate that consumer spending on Christmas could come very late this year, as customers wait to see what happens at the Budget.
“I think customers will be cautious. I think there’ll be some very delayed spending this year, until all of the news from the next few weeks comes out. So, we’re really focused on making sure that we get our offer out there really strongly”.
As a result, Sainsbury’s and Argos have launched the first phase of its Black Friday offers earlier this year than last. Roberts says its performed well, and he is “confident that we have both the value and the availability” to ensure momentum continues into Christmas.
Argos still up for sale
During the period, it emerged that Chinese retailer JD.com had been progressing in talks with Sainsbury’s about buying Argos. While the deal eventually collapsed, and despite Argos’ improved performance in the first half, Roberts refused to rule out a future sale of the general merchandise retailer.
“If somebody comes to us, who is clearly an interested party, we have a responsibility to engage in those conversations. The reason we stopped [with JD.com] was because the basis of the terms that were presented changed substantially from what they had been.
“Therefore, it was absolutely right that we walked away from that. We’re not in any active discussions [about Argos] now, and we’re focused on absolutely being on our game in a challenging market”.
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