Sainsbury’s tactical pricing eases sales decline to bring ‘moderate’ optimism to brand future
Sainsbury’s response to tough competition has been tactical pricing, a strategy that might lack the glitz of its previous marketing efforts but appears to be slowly easing its sales woes amid fierce competition.
The supermarket, once famed for its Jamie Oliver ads, is pursuing a more lowkey marketing plan that’s underpinned by a mid-to-low pricing strategy designed to curb its reliance on promotions and take it closer to the discounters that have rapidly risen to establish retail’s status quo.
Sainsbury’s introduced the changes last September and their cumulative impact is giving the retailer cause for “moderate” optimism”. Chief executive Mike Coupe said the move away from promotions in favour of lower regular prices had spurred the volume of sales and the number of transactions in Sainsbury’s stores. Consequently, sales from stores open a year or more dropped 1.1 per cent in the second quarter, which is not as steep a drop as the 1.3 per cent analysts had predicted.
“As we continue to reduce our promotional activity in favour of lower regular prices, we are improving the accuracy of our demand forecasting,” said Coupe.
“This is driving better availability and lower than expected levels of waste. This also results in even better product freshness which supports our commitment to quality. Our customers are telling us that we are communicating our prices and promotions more clearly which, in combination with the price reductions we have made, has seen an increase in price satisfaction scores.”
Declining like-for-likes in the UK supermarket industry is almost the new norm for the big four. However, Sainsbury’s performance is proof of it could have the firepower needed to compete with the discounters. Indeed, the supermarket was the only one its peers not to have lost market share in the previous month - Sales rose 2.2 Per cent, according to Kantar Worldpanel
Much of Sainsbury’s growth has been achieved through changes to customer service and the in-store experience that eschew the fanfare of a nationwide ad campaign. “Our customers are telling us that we are communicating our prices and promotions more clearly which, in combination with the price reductions we have made, has seen an increase in price satisfaction scores,” added Coupe.
It amounts to the supermarket “doing a bit better than expected,” Coupe told analysts on an earnings call this morning (30 September). He went on to add that the business has believed for some time it’s in better shape than its peers regraldess of what the market thinks and that the growth was also the result of small incremental changes on things like the product availability and its website coming together over the last year.
Retail experts warn that lower prices will only get Sainsbury’s so far and that it will need to move away from it to focus on a unique aspect of the proposition.
“Tactical pricing is not exciting or differentiating enough” to attract new customers in the long term, said PauL Thomas, a consultant at Retail Remedy. “Sainsburys is the unsmoked ham at the deli counter, good quality, but just very ordinary.”
John Ibbotson, director of the Retail Consultants, argued that "ripe avocados and healthier yoghurts certainly won't save you in such brutal market conditions – a reference to Coupe’s praise of the volume growth of its Taste the Difference range in the quarter, which was by over four per cent.
"UK supermarket retailing has undergone a seismic shift, driven by the arrival of the discounters, new online shopping patterns, sector-wide price-cutting and general food price deflation. And now it has the living wage to deal with. Major strategic issues remain for Sainsbury's, not least the deadly impact on profit margins of the living wage. This is yet another hurdle to overcome.”
Sainsbury’s also took time to single out the growth of its online business in the quarter. Grocery online orders grew over 15 per cent in the period and the supermarket expanded its click and collect stes to 52. It also launched a website for its TU clothing brand, which Coupe said has already “exceeded our expectations” since it launched six weeks ago.