Simon Roberts rounded off his first month as J Sainsbury (SBRY) chief executive with the news that first quarter online sales had more than doubled from the same period last year. But the supermarket group warned that its sales growth would falter, observing that the benefits of this surge, and the government’s business rates relief, would be wiped out by a £500m blow to underlying pre-tax profits caused by the pandemic.
UK shoppers continue to embrace online grocery buying at an unprecedented rate. In the four weeks to 14 June, UK online grocery sales rose 91 per cent, with nearly one in five British households pursuing the digital option, according to Kantar data. This took place against rising prices, with grocery inflation sitting at 4 per cent for the period.
Digital channels are winning new customers
Sainsbury’s total retail sales lifted 8.5 per cent during its first quarter, excluding fuel. Grocery sales rose 10.5 per cent, with weekly online orders rising to more than 650,000 from previous levels of around 370,000. This has been supported by the introduction of Sainsbury’s new one-hour delivery service, Chop Chop, while the good weather during the period also helped drive sales growth. Almost half of the group’s online grocery buyers are new customers.
This trend has been reflected across the supermarket sector. In late June, Tesco (TSCO) said that it had doubled its online capacity and that it is serving more than 1.3m weekly online orders. Its online grocery business has grown from around 9 per cent to more than 16 per cent of UK sales.
Clothing sales for its first quarter fell 26.7 per cent, although these are recovering quicker than expected, the group said. Sainsbury’s is also reopening its Argos stores with all 573 outlets having been closed for most of the quarter. Argos sales rose 10.7 per cent owing to strong home delivery and click and collect sales, which increased 78 per cent and 53 per cent respectively. Sainsbury’s has reopened 174 Argos stores thus far and will open a further 100 this month.
Consumers will tighten their belts
Sainsbury’s repeated guidance issued in April that it expected a profit impact of over half a billion pounds relating to coronavirus. It also highlighted imminent pressures on consumer spending, and is sticking to its base scenario of unchanged underlying pre-tax profits for the year. Sainsbury’s recorded underlying pre-tax profits of £586m in its year to 7 March 2020.
The new chief executive does not expect his group’s hot sales run to last. “The coming weeks and months will continue to be challenging for our customers and our colleagues and we do not expect the current strong sales growth to continue,” Mr Roberts said. “A number of the decisions we have made have materially increased costs but meant that we have done the right thing for our customers and set us up well for the future.”
The threat of an imminent and lasting recession will stoke fears over the security of supermarkets’ financial services arms. Sainsbury’s bank has improved its capital position since the group’s year end, with lower lending activity helping to push its liquidity up by £491m - it has £665m above the regulatory minimum. Sainsbury’s slashed costs in this division by 14 per cent over the quarter, and expected to cut its investment outlay for the year by a third.
Sainsbury’s isn’t alone among supermarkets in adopting a more prudent stance on its banking activities. Tesco announced recently that it had increased its bad debt provision, and consequently expects a full-year loss for its bank ranging from £175m to £200m.
