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Sainsbury's

Culling brands a dangerous game to play, says Sainsbury’s boss following first annual loss in 10 years

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By Jennifer Faull, Deputy Editor

May 6, 2015 | 3 min read

Sainsbury’s has recorded its first loss in a decade, noting a pre-tax loss of £72m for the year to 15 March.

Chief executive Mike Coupe blamed much of the poor performance on a write-down in store value, however like-for like sales were down 1.9 per cent as it continues to battle against the rise of German discounters Aldi and Lidl.

Tesco – Sainsbury’s main ‘Big Four’ rival – has suffered similar problems and announced a cull of nearly a third of its products in an attempt to cut costs and make the weekly shop simpler. Kingsmill was among the first brands to be axed in the shake-up.

However, speaking with analysts Coupe said “one plays with ones ranges at ones peril.”

Although he didn’t refer to Tesco directly, he said: “The rhetoric around 30 per cent reduction in range we just don’t get.

“Time and time again customers tell us they can buy things in our shops that they can’t buy elsewhere,” he said.

Coupe referenced its extensive FreeFrom range - offering products free from wheat, gluten and/or dairy - which he said was a point of “differentiation” in the market.

“We have a high market share - 30 per cent. A high percentage of those products would be at the tail end, and there would be conversations about cutting them. But they appeal to customers at the high end of the income spectrum who will usually spend more with us.”

Data gathered from its Nectar loyalty scheme is informing how it ranges shops.

Overall, Sainsbury’s claims to have never been "more competitive on price versus competition" and was responding by investing £110m into lowering prices on products this year "where customers have told us that price is most important”.

Non-food items performed well for the supermarket, with general merchandise and clothing up over nine per cent. Sainsbury’s Bank similarly saw a 17 per cent boost in operating profit to £62m.

Coupe said it will forge ahead with its current strategy, which was implemented last year, to focus more on values and quality as 3,000 of its own-brand products are improved.

“We are making good progress with our strategy and our investment in price and quality is showing encouraging early signs of volume and transaction growth,” he said.

However, John Ibbotson of retail consultants, Retail Vision, said Coupe's strategy is "nowhere near radical enough" to tackle the revolution within grocery.

"He needs to take a lesson out of Dave Lewis' book and kitchen-sink the whole thing. Tesco have grasped the nettle and made the big decisions, and unless Sainsbury's does the same the medium to long-term pain will be even worse," he said.

"Mike Coupe's leadership feels old guard in a new world. The strong values of his company should be applauded but what really matters in today's market is strong value — and is he delivering that? Right now, it would appear not."

The group is in the process of cutting around 800 jobs as part of a £500m cost-saving drive.

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