Robust digital operations puts Sainsbury’s in good stead to handle shifting channel demand

Following today’s release of Sainsbury’s Q1 figures for FY2020/21,

Thomas Brereton, Retail Analyst at GlobalData, a leading data and analytics company, comments:

‘‘Sainsbury’s Q1 results are a pleasing read, with positives stemming largely from its ability to meet changing customer habits as a result of heavy digital investment over the past five years. Grocery sales grew 10.5%, buoyed by an 87% increase in online sales following a jump in orders fulfilled to 650k per week (over double that available in Q1 2019/20) as many shoppers took up home delivery in a bid to avoid physical stores. And while impaired demand across apparel (where sales fell 26.7%), fuel and banking negatively impacted total sales growth, these declines are broadly in line with rival Tesco, and Sainsbury’s will be pleased that these sectors are not displaying obvious problems that will persist outside of the immediate impact of COVID-19.

In fact, unlike much of the last two to three years, Sainsbury’s has a lot to be optimistic about when comparing themselves to competitors. For Sainsbury’s general merchandise arm Argos, its previous investment in website performance, fulfilment capabilities and the store-in-store concept has borne fruit, realising a sales increase of 10.7% (including home delivery at +78%) as shoppers raced to buy home-related equipment such as office furniture and indoor sports equipment. This uptick will inevitably decline in Q2 and afterwards (with many such purchases being one-off buys and competition rising as physical rivals begin to open up), but when the dust finally settles on this coronavirus saga, there will be few non-food retailers with a physical presence that appear in as good a light as Argos.

So, looking at sales performance, channel adaptation and the apparent newfound success of previously trialled innovations (such as SmartShop and Chop Chop), new CEO Simon Roberts will feel that his first quarter has gone about as well is it could do in the circumstances. But, there are some clouds on the horizon – notably, the cost of all this improvement. At its full year results in April, Sainsbury’s expected an initial profit impact cost of £500m due to COVID-19; in this update, this was rather ominously changed to “more than £500m”, and investors (which had their dividends deferred after the full year results) will be anxiously awaiting greater clarity at its half-year results in November.”

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