What’s gone wrong at Sainsbury’s? Three problems the supermarket must address
It has been several months now since the Mike Coupe’s dreams of a merger with Asda were dealt a lethal blow from Britain’s competition watchdog, but how much has changed?
Directors at the supermarket chain have been setting out a plan to cut costs, slash debt and refurbish 400 stores. Yet investors will likely have to wait until the group’s Capital Markets day in September before finding out more of the details.
Read more: Sainsbury’s sales slip in ‘tough’ supermarket environment
In the meantime, let’s take a look at three huge challenges Sainsbury’s now faces amid accusations it has lost its sense of the best path forward.
Industry pressures
In the meantime, today’s 1.6 per cent drop in sales did not make for pleasant reading, with weaknesses in non-food categories such as clothing standing out. The group was always facing tough comparatives, facing up against last year’s combination of a World Cup run, a royal wedding and bumper sunny weather.
But with seismic industry pressures – both from Tesco’s improved performance and rise of the German discounters Aldi and Lidl – the retailer faces larger questions than just the weather.
“We already know the supermarket sector is highly competitive and Sainsbury’s is stuck in the middle – being too expensive for value shoppers and not perceived as high enough quality for the premium shoppers,” according to AJ Bell’s investment director, Russ Mould.
He added: “There is still a sense that Sainsbury’s doesn’t really know what it wants to be. Without a unique selling point it will be hard to have clear marketing strategies, targeting the right type of people and commanding customer loyalty.”
Read more: Tesco shares: Reasons to be cheerful
Brexit trouble
It is not just industry headwinds but also Brexit uncertainty that has been troubling the firm.
Coupe said today that “you couldn’t choose a worse date” than 31 October when it came to a deadline for an agreement between Britain and the EU.
“The 31st October is bang in the centre of when we are gearing up supply chains and stocking for all the main Christmas events. You couldn’t choose a worse date…we import a lot of electrical goods like tech and tvs – you don’t have to go very far to see the kind of categories that would be disrupted.”
Even supplies of toys ahead of Christmas could be hit, Coupe warned.
Mike Coupe’s salary
Away from the specific sales figures, Coupe has also made headlines in recent days over his pay.
The chief executive has been coming under fire for his £3.8m pay packet for the year to March, which rose slightly despite the spectacular collapse of his merger plans with Asda earlier this year.
Read more: Why analysts are predicting a sales drop at Sainsbury’s
On the phone today Coupe remained resilient, telling journalists that his pay is set by a remuneration committee, and his performance is matched against targets that determine what he earns.
But shareholder advisory PIRC has nonetheless told investors to oppose Coupe’s new pay packet at its annual general meeting (AGM) later today, heaping further pressure on the under-fire executive.