Times are still tough, but Sainsbury's and Morrisons both have reasons to be cheerful

Sainsbury's: lower sales and profits, but other figures are more positive
Sainsbury's: lower sales and profits, but other figures are more positive

Sainsbury's and Morrisons released financial results this week, and each has reason for cautious optimism. They have found two different ways to keep winning in difficult times, says brand consultant and retail watcher Kate Jones.

Results out this week paint an OK picture for the UK’s number two supermarket Sainsbury’s and glimmers of hope for a newly slimmed-down and repositioned Morrisons.

Sainsbury’s headline figures - a 14% drop in pre-tax profits to £548m, and like-for-like sales down 0.9% - make uneasy reading, but in a time of retail turmoil, things might not be as bad as they look.

It’s a different story for troubled Morrisons, posting a second quarter of like-for-like growth of 0.7% under new CEO David Potts.

Neither of these are by any means spectacular, but taking the environment into account, both are positive for different reasons: Sainsbury’s is diversifying to combat the future whilst Morrison’s is focusing on the unique point of difference it has to stand out.

Under the bonnet, Sainsbury's engine is running smoothly

According to Kantar, in the first 24 weeks of the year, Sainsbury’s was the only big four retailer to hold market share (16.5%) whilst Aldi and Lidl continued to eat away at the rest of the pack, with a combined rise from 9.2% to 10.4%.

It’s a tough world out there. Aggressive discounting coupled with price deflation are to blame and are not likely to go away, a fact not lost on Sainsbury's CEO Mike Coupe.

He said: "Prices are actually 4% lower, would you believe, than two years ago and that's a reflection of the fact that the market is fiercely competitive - and it will remain so for the foreseeable future."

It appears that the future is definitely in Mr Coupe’s thoughts and the good news you don’t see in Sainsbury's headline figures suggests a simplified core business building on success and looking to widen its appeal and reach.

  • A diversified offer: Clothing sales outperformed the market with growth of 8.5%, while Sainsbury’s bank generated £65m in profit underwriting reports of a new mortgage play

  • A multichannel approach: Online sales were up 9%, convenience stores saw growth of 9% - Sainsbury’s now has more than 100 more convenience outlets than supermarkets in the overall portfolio, matching shifting shopper habits

  • A leaner and meaner core: Cost savings of £225m in the last 12 months

Let’s not forget the potential game-changer in the pipeline with the Argos (Home Retail Group) takeover.

What may be seen as a distraction could also be a necessity in terms of diversity and breadth of range, not to mention point of distribution and multichannel delivery. This is not a business content with standing still.

Morrisons has located its USP

Morrisons, on the other hand, has taken a good hard look at itself and amid the nightmare of store closures and laying-off of staff, has discovered something quite marvelous.

This retailer is also the second biggest food producer in the UK.

Leveraging this capability is the very foundation of its recovery - and things look good too. If the business can make it work, it could pose a real challenge to the status quo.

The rumoured launch of Amazon Fresh as early as this mid-May is no doubt being hotly anticipated by the big four.

Morrisons already has a trading relationship with Amazon with respect to online delivery, but as a food producer this could no doubt be much extended for mutual benefit.

In a time of food deflation and shift to online, who would have thought that grocery retailing would be so exciting?

A year ago, few would have predicted Morrisons to be in the positive position it is in today. Talk of discounters and price wars is starting to feel a little old hat now, and looking to the future with strong, cohesive and bold strategies appears to be the order of the day.

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