Sainsbury’s – Strengths, Issues and Recommendations

Sainsbury’s – Strengths, Issues and Recommendations

Background Information

Sainsbury’s is the second largest supermarket chain in the UK with over 1400 stores. The UK supermarket industry is dominated by 4 companies, the other 3 are Tesco, Morrison’s and Asda. However, in recent years their dominance over the market has come under threat from low cost competitors, namely Aldi and Lidl. In 2016 Sainsbury’s achieved revenues of £23.51bn in 2016, this was helped by their acquisition of Home Retail Group (which includes big household names such as Argos and Habitat) in September 2016.  

Strengths

The £1.4bn acquisition of Home Retail Group in September 2016 has yielded significant cost savings for Sainsbury’s, greater than what was initially targeted. The group has already achieved synergy savings of £130m through merging operations and has cut costs elsewhere in the business saving over £500m over the last 3 years.  

The merger is a positive move for Sainsbury’s as they diversify into other markets and create revenue streams aside from their supermarkets. Sainsbury’s have had success with this in the past with their bank and so continuing to diversify is a promising sign.

Relative to some of the other Big 4 supermarkets, namely Tesco and Morrison’s, Sainsbury’s have performed well. The market as a whole is experiencing a changing landscape, largely due to the growth of discount grocery stores such as Aldi and Lidl, and so experts had predicted a fall in Sainsbury’s’ profits. However Sainsbury’s performed better than some forecasts estimated and outperformed key competitors.

Issues

Sainsbury’s have experienced a fall in profits from last year by 8.2%, reducing annual profits to £503m. This has resulted in earnings per share declining by 22 per cent to 8.7p. This can be attributed to a number of reasons. The UK’s high inflation rate across the latter half of 2017 has pushed costs up thus shrinking profit margins. This alongside the success of German discount stores in gaining market share, has proven challenging to Sainsbury’s. Furthermore Argos experienced losses over the Summer which further damaged profit figures.