Pressure on households will only get worse, says Sainsbury

London — 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 11.2%.

CEO Simon Roberts said Sainsbury’s understood how hard it Is for millions of households right now. “The pressure on household budgets will only intensify over the remainder of the year,” he said on Tuesday.

Sainsbury’s prices are not rising as quickly as they are 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 1.5%, while smaller rival Morrisons reported a slump of 6.4%.

Roberts said shoppers are switching to economy own-label products. But they are 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 past 12 months, were trading up 1.3% on Tuesday as it stuck to its guidance. It still expects full-year profit of £630m-£690m, down from £730m in 2021/2022.

British consumer confidence has plummeted as households struggle with the accelerating cost of living. Wages are failing to keep pace with inflation, which 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 is improving. But more of its sales come from general merchandise than its rivals due to its stand-alone 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.

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

Reuters