Sainsbury's warning as sales slump

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%VIRTUAL-SkimlinksPromo%Supermarket Sainsbury's warned that the market is growing at its slowest pace for nearly a decade as it broke a nine-year run of underlying sales growth.

The group revealed that like-for-like sales excluding fuel slumped 3.1% in the 10 weeks to March 15, marking a sharp reversal of recent fortunes and the first fall after 36 consecutive quarters of rising sales in a row.
Outgoing boss Justin King said the group came up against tough comparatives from a year earlier when it outperformed many rivals amid the horsemeat scandal and benefited from the timing of Mother's Day and Easter trade.

But he stressed that the market was facing tough conditions in the latest downbeat trading statement from one of the "big four" players as cost-conscious consumers increasingly turn to discounters such as Aldi and Lidl.

He said: "The market is now growing at its slowest rate since 2005, with falling food inflation in particular benefiting customers."

He added: "Although some economic indicators are showing an improvement in the health of the economy, we expect the outlook for customers to continue to be challenging for the coming year."

The group's fourth-quarter sales decline was steeper with fuel included, falling by 3.8%.

Experts at Shore Capital Stockbrokers slashed full-year profit forecasts for Sainsbury's as they said the sales slide was slightly worse than already- downbeat expectations.

But Sainsbury's appeared to resist being drawn into the price war waged by its three main rivals to take on the might of the discount chains.

Morrisons last week followed the lead of Tesco and Asda, pledging to invest £1 billion over three years after it tumbled to a £176 million annual pre-tax loss and warned over results for the year ahead.

The dismal figures from Morrisons sparked a shares rout among listed supermarkets amid worries over a full-blown price war.

All four of the major players have reported sliding sales in recent months, while the likes of Aldi and Lidl have benefited from a switch to cheaper alternatives.

But despite the fourth-quarter sales plunge, Sainsbury's said it had continued to outperform its main rivals and bucked the trend for falling market share, held at 17% in the 12 weeks to March 2, according to recent Kantar Worldpanel data.

Instead of unveiling a swingeing price-cutting campaign, Sainsbury's highlighted the "value for money" of its popular own-brand ranges, claiming they were already 20% cheaper than branded equivalents and now make up more than half of all sales - 51%.

It also put faith in its growing clothing ranges, boosted by a collaboration with designer Gok Wan, convenience store business and online delivery offering.

The group saw a million transactions in one day across its 91 convenience stores for the first time during its fourth quarter and said growth remained strong at 15%, while online grocery trade rose by 6%

Shore Capital's retail analysts said the sales results will be a "particular disappointment" for Mr King, who steps down after 10 years at the group's annual meeting in July, when he will hand over to commercial director Mike Coupe.

They said: "We will be interested to see how Sainsbury's approaches the greater discount challenge.

"Whilst it is not losing out to the same extent as its peers, we do not believe that Sainsbury's is blind to the challenge."

Sainsbury's said that, while it will not launch an explicit price-cutting programme, it has already lowered the cost of of milk, bread and eggs in response to moves by its competitors and confirmed it would follow suit as and when they bring prices down.

Mr King said the retailer was "not at all complacent" about the threat of the discount chains, but disagreed with Morrisons boss Dalton Philips, who said last week that it was the biggest structural shift in the grocery sector since the advent of supermarkets in the 1950s.

"The discounters have been around for years - they're not a new phenomenon," said Mr King.

He said that while discounters were growing strongly and now adding more supermarket space than the grocers, their market share is lower today than it was in the early 1990s, when they had around 12% of the market.

He was also dismissive of a price war, claiming it was all part of the "cut and thrust" of the market.

"We should all be pleased with lower prices and in the long run that's good for the market," he said.
The fourth-quarter sales drop threatens to mark the end of an era for Sainsbury's after a resurgent performance in recent years.

Fears over the group's sales record came after it eked out paltry growth of 0.2% over its Christmas quarter and admitted it was likely to miss previous expectations for a full year like-for-like sales increase of 1% to 1.5%, prompting analysts to shave annual profit forecasts.

Full-year like-for-like sales have now been left just 0.2% higher after the fall in the final quarter.

10 tricks supermarkets use to get you to spend more
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Sainsbury's warning as sales slump
The subtle manipulation starts as soon as you enter the store when you are assailed by the smell of flowers and fresh bread, which are often placed near the door. The smell is intended to put you in a good mood and to get your salivary glands working. You are also more likely to pick up these higher-ticket items when your cart is empty.

Similarly, fresh produce like fruit and vegetables (one of the most profitable sections at the supermarket) is also usually at the front because the bright colours are more likely to lift your mood than bland cartons and cans. Mist is sometimes sprayed on the fruit and veg to make them look fresh but can actually make them rot faster. 

Supermarkets do their best to spread staples far apart to force shoppers to walk through the whole store and lead them into temptation (meat in the back right hand corner, dairy in the back left hand corner).

(Industry experts claim that this is for logistical reasons. Milk needs to be refrigerated straight away and the lorries unload at the back. That does not explain why other staples like eggs are at the back.)

In most stores customers move from right to left. Some speculate this is because in many countries, including the US, people drive on the right. Also, most people tend to be right-handed so this feels more natural. "It is the left hand that pushes the cart, and the right hand that is our grabbing hand," says Underhill. Due to this flow, the things you are most likely to purchase tend to be on the right hand aisle while promotions on the left are designed to help shift the less popular goods.

Pricier items are placed at eye height. The cereal aisle is a good example, where healthier cereal is at the top, big bags of oats and other bargain cereals are generally on the bottom shelf and more expensive, big-name brands are at eye level – easy to see and reach. Some items are deliberately placed at children's eye height, such as highly-advertised cereals.
You cannot assume that items on sale at the end of an aisle are a good deal. Those endcaps are sold specifically to companies trying to promote a product, observes Underhill, consumer expert and author of What Women Want: The Science of Female Shopping.

The music you hear is not just a random playlist. Dubbed 'Muzak,' it is carefully selected by an 'audio architect' who has analysed the store's demographic.
Douglas Rushkoff, author of Coercion: Why we listen to what they say (1999), says grocery shoppers respond best to Muzak that has a slower tempo, making a whopping 38% more purchases when it is played overhead. By contrast, fast-food restaurants use Muzak that has a higher number of beats per minute to increase the rate at which a person chews.
There are 74 Muzak programmes in 10 categories, ranging from indie rock to hip-hop and classical, which are mapped out in 15-minute cycles that rise and fall in intensity using a technique known as 'stimulus progression,' writes Martin Lindstrom, marketing consultant and author of Brandwashed: Tricks Companies Use to Manipulate Our Minds and Persuade Us to Buy.

Shopping carts are getting bigger because research shows that consumers buy more when they can fit more in the cart. Multi-packs are also getting bigger, because the more people buy, the more they tend to consume. If you used to buy a six-pack of coke and drink six cans a week but now buy a 12-pack because that's the new standard size, you're probably going to start drinking 12 cans a week, Jeff Weidauer, former supermarket executive and vice president of marketing for retail services firm Vestcom, told Reader's Digest.
Customers think that when they buy in bulk, they get a better deal. But that's not always the case. Work it out yourself, and only buy as much food as you can eat before it goes off.
Supermarket pricing is often described as a "dark art". Are offers like 'Was £3, Now £2' or 'Half Price' genuine? In Britain, supermarkets have been caught out on putting up prices shortly before discounting them heavily. The Office of Fair Trading clamped down on 'yo-yo pricing' and eight major supermarkets (Aldi, Co-Op, Lidl, Marks and Spencer, Morrisons,Sainsbury's, Tesco and Waitrose) signed up to a set of principles drawn up by the watchdog in late 2012. The principles also say that pre-printed value claims such as 'Bigger Pack, Better Value' must be true.

However even with those principles, the question is whether products were ever priced realistically.
Two for one offers are a money illusion, as you may end up buying more than you need. The Office for National Statistics does not include two for one offers in its inflation numbers on the grounds that they are not a genuine discount, as consumers may not have wanted the second item.

Another well-practised trick is to make promotions very specific and put the sign next to a full-price item. Often customers get confused and end up grabbing the wrong item.

Lindstrom says the average consumer tends to remember the price of only four items: Milk, bread, bananas, and eggs. They often don't have the faintest idea whether they are getting a good deal or not. But the bulk of what shoppers buy they buy every week. So if you are really methodical and keep your old receipts, you would know when something is on sale and stock up then.
If you have a store loyalty card, supermarkets track your spending and send you targeted vouchers through the post to remind you to shop and purchase certain brands. This can work in your favour if you were going to buy them anyway, but might prompt you to buy something you didn't really want or need.
Watch out for 'speed bumps' of goods that go together – for example seasonal displays such as a bunch of Halloween-themed items - in aisles or at entrances. Sample stations along with recipes also slow you down and give you a taste of new products or lesser-known foods such as kale. Mobile displays, LED lighting, floor graphics, ceiling hangers or digital or video marketing are other common marketing tricks.
Chocolates and other sweets have long adorned checkout counters where bored kids are nagging their parents to buy them a treat. Supermarkets have come under pressure from the government to move chocolate away from checkouts and some have responded. Lidl has justbanned sweets and chocolate bars from the checkout of its 600 UK stores and vowed to replace them with dried fruit and oatcakes.

Sainsbury's has a policy of no confectionery next to checkouts in its supermarkets, but not in smaller convenience stores, similarly to Tesco.

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