The inflationary pressure on households will “only intensify” through the rest of this year, the boss of Sainsbury’s has warned as he said the supermarket would invest £500m in attempting to keep prices low.
The dour sentiment was echoed by the chair of Marks & Spencer, Archie Norman, who told shareholders at the retailer’s annual general meeting on Tuesday that there was a “coming winter in consumer demand”.
Norman suggested M&S was “more resilient” than in earlier downturns despite inflation and difficulties for its suppliers as food producers struggled to find workers. He said: “[Others] in the industry, both food and clothing, are going to suffer. I don’t just mean customers; I mean retailers,” he said.
Sainsbury’s, the UK’s second-biggest supermarket, which also owns the Argos and Habitat chains, revealed that sales at established stores fell 4% in the 16 weeks to 25 June compared with the same period a year before and excluding fuel.
The slide was led by an 11% fall in sales of general merchandise and a 10% drop in sales of clothing compared with a period last year when Sainsbury’s benefited from most clothing and non-food stores being closed under pandemic lockdowns.
Grocery sales fell 2.4% year on year, as the same quarter in the previous year included a period when most restaurants, bars and cafes were closed, and were up nearly 9% on pre-pandemic levels.
The figures emerged as shoppers have switched to cheaper products, such as frozen and tinned foods and supermarket own-label items, and set themselves tight budgets amid hefty grocery inflation and a squeeze on the cost of living from higher energy, petrol and housing costs.
Sainsbury’s said sales of its cheapest own-label products were up by more than 5% in the quarter as shoppers tried to offset inflation by switching away from big brands rather than buying significantly fewer items. Online grocery shopping also slid to about 600,000 orders a week from more than 800,000 at its peak during the pandemic as households have returned to physical stores and are shopping around more to find bargains.
Simon Roberts, the chief executive of Sainsbury’s, said: “The pressure on household budgets will only intensify over the remainder of the year and I am very clear that doing the right thing for our customers and colleagues will remain at the very top of our agenda.”
He said shoppers were “watching every penny and every pound” and sales of more expensive non-food items were “challenged” but he said people were also looking to Sainsbury’s for treats on special occasions. Sales of products in the supermarkets’ premium Taste the Difference range, including scones and strawberries, were up 12% during the platinum jubilee week when Sainsbury’s sold the largest amount of beers, wines and spirits ever outside Christmas and Easter.
“We really understand how hard it is for millions of households right now and that’s why we are investing £500m and doing everything we can to keep our prices low, especially on the products customers buy most often. We’re working hard to reduce costs right across the business so that we can keep investing in these areas that customers care most about,” Roberts said.
He said the improvements Sainsbury’s had made on value, quality, innovation and service had helped the retailer take a bigger share of the grocery market in volume terms. Inflation on Sainsbury’s shelves is running behind the industry average of about 7%, Roberts said, as it tries to strike “an important balance on keeping prices down and keeping products in stock for customers”.
However, Roberts said there was “a lot of pressure in the system” from rising costs of commodities, labour, fuel and fertiliser and from the war in Ukraine, so Sainsbury’s was having to “work very closely with suppliers” to deal with inflation.
The supermarket is also expected to come under pressure at its annual shareholder meeting on Thursday to sign up to the independently verified living wage pledge, which would ensure all its contractors were paid a minimum of £9.90 an hour, and any future calculation of the living wage, alongside all employees.
Roberts said Sainsbury’s had “taken a leadership position” on pay, with all employees now paid at least the independent living wage, and that the supermarket was encouraging its independent contractors, such as cleaning and security firms, to do so as well.
However, he said: “We don’t think it is right to make [pay] decisions [based on] an unaccountable third party. We think it’s right to make the decision ourselves.”
Sainsbury’s said the sales fall was in line with expectations and it continued to expect to meet its target of making profits of between £630m and £690m in the year to March 2023.
