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Sainsbury - food deflation still biting

Like for like sales fell 1.1% at Sainsbury’s over the last quarter (excluding fuel), though volumes were up. In other words, falling prices pushed overall sales into the red.

The newly acquired Argos had a more positive quarter, seeing 2.3% like-for-like sales growth. Sainsbury’s is planning to have 30 Argos Digital stores open in its supermarkets by Christmas, and is also opening in-store digital collection points so customers can collect items from Argos, eBay, Tu Clothing, and DPD parcels from Sainsbury’s outlets.

Laith Khalaf, Senior Analyst, Hargreaves Lansdown:

‘Food deflation continues to bite hard on the supermarkets in an extremely competitive environment. Sainsbury’s is getting more items passing through the checkouts but the price of those goods is still falling, and the net effect is still falling sales in pounds and pence.

The Home Retail Group deal was a bold step for Sainsbury’s, taken at a challenging time for the industry, but if they get it right it could boost their market share. The prospect of customers coming in store to pick up their Christmas gift orders from Argos and doing some seasonal shopping at the same time looks quite promising for the supermarket.

However the falling pound will start to take a toll as currency hedges and supply agreements fall out of the equation, and Sainsbury’s and its peers will have to stock their shelves at higher prices. Given the highly competitive price environment, it’s going to be a tough choice between passing on that additional cost to customers, and taking a hit to margins.’


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