It has been a challenging few months for Sainsbury’s.
Shares tumbled to historic lows as the UK’s second biggest supermarket took one blow after the next.
The deepest cut was made the UK’s competition watchdog when it scotched Sainsbury’s plans to merge with Asda – a deal that would have created a new supermarket Goliath bigger than Tesco.
Asda’s off the menu: Sainsbury’s boss Mike Coupe (above) shrugged off his disappointment that the planned merger with Asda is now off the table
When the audacious plan was unveiled a year ago, Sainsbury’s said it needed Asda to help it compete in a fast-changing grocery market.
Given how sharply the group’s shares fell when the deal was called off, it seems many of its investors agreed; the merger was not a ‘nice to have’ but a ‘need to have’. But now Asda is off the menu – or ‘ancient history’ as Sainsbury’s boss Mike Coupe put it as he played down his disappointment earlier this week.
That’s not its only problem. As the firm whittled away nearly £50million on a deal that would come to dust, other red flags started to emerge.
Pictures of shoddy presentation and empty shelves have been cropping up on social media with increasing regularity, a telling sign that Sainsbury’s is not firing on all cylinders.
Analysts have accused Coupe of taking his eye off the ball and argue that the firm’s decision to axe thousands of middle management roles last year is having a deleterious affect on store standards.
One eagle-eyed retail watcher Bruce Southside tweeted these pictures taken in a Sainsbury’s earlier this week
The closely-followed supermarket figures by Kantar delivered a sucker punch this week too. The latest report, which came out just days after the Asda merger was vetoed, said Sainsbury’s was the only grocer to suffer falling sales in the last 12 weeks.
But what really makes matters worse is that Sainsbury’s troubles stand in painful contrast to the success stories being hailed by its supermarket rivals Tesco, Morrisons and Asda, which are all getting back on track after years of decay.
Sainsbury’s looks, by comparison, like the weakest in a strong pack.
‘If you look back over history at the Big Four or Five supermarkets, there’s never been a time when every grocer is doing well,’ says Bryan Roberts, global insights director at TCC Global. ‘There’s always one suffering.’
When Tesco was at its lowest ebb a few years ago (it made a crippling £6.4billion loss in 2015 and saw its shares tumble to £1.50) Sainsbury’s was the grocery sector’s guiding light.
It sat in the sweet spot; attractive to those who had shunned Tesco, but were unwilling to fork out for Waitrose or M&S. It struck a happy medium on both quality and price.
Roberts puts Sainsbury’s woes into context: ‘Its problems are, in reality, on nothing like the same scale as Tesco’s a few years ago,’ he says
‘Tesco got it very badly wrong, switched its focus to margins and processes and KPIs, and totally took its eye off the shopper.’
But the orange supermarket does have some ‘self-inflicted’ problems it urgently needs to address, Roberts adds.
‘With Sainsbury’s, I get a sense that the big staff restructure last year was a bit too much and has over-stretched some of the remaining colleagues.
‘Sainsbury’s can swear that stock standards are fine but, observationally, availability at peak time isn’t what its needs to be. It needs to offer a premium service to justify its pricing.’
Grocery expert Steve Dresser regularly shares images of Sainsbury’s stores on twitter, flagging the recent product availability issues
The grocer is simultaneously being hunted by the discounters Aldi and Lidl, which are now opening up shops on its turf.
‘But it is not in crisis or anything like that,’ Roberts adds. ‘It’s Sainsbury’s turn to be the under-performer. And really, Tesco was much, much worse operationally and financially. Sainsbury’s is not in anything like that state.’
Even still, the City is looking to Sainsbury’s for some answers. How is it going to fill that Asda-shaped hole, persuade shoppers back through the doors and fend off the competition?
At full-year results earlier this week, the company did not commit to a firm change in strategy. There seemed to be no ‘Plan B’.
Coupe said there wasn’t a ‘silver bullet’ and insisted he would be staying on as boss, rebuffing the claims of falling standards. But he did say he would step-up store refurbishment plans and improve two thirds of the estate – around 400 shops, while also reducing debt by £600million.
Store revamp: Sainsbury’s has been testing out some new-format stores, such as the ones at Selly Oak and Nine Elms
Roberts says he is ‘heartened’ by these efforts and argues that the store revamps will help… ‘but only if there’s more to it sticking in an Argos and a sushi counter!’
‘It will really need to roll-out elements of some of its trial format stores – like the one at Selly Oak and Nine Elms,’ he argues.
Sainsbury’s has also launched its first ever ‘till-free’ store, and has been piloting a more personalised and ‘digitally enhanced’ Nectar loyalty card.
‘Sainsbury’s appears to now be one of the more future-ready UK grocers,’ says Thomas Brereton from GlobalData.
‘With respect to innovation and readying the business for the long-term, Sainsbury’s seems not only competitive but arguably market-leading.’
But promises of long-term gains do little to soothe worries over short-term difficulties.
While Tesco, Morrisons and Adsa enjoy a return to form, Aldi and Lidl gobble up more of the market and M&S gets into bed with Ocado, Sainsbury’s will have to do something drastic to get off the naughty step and allay fears that it really does need a partner to help fill in its gaps.