Sainsbury's sales slide as it axes bogof deals

Conditions 'challenging' says boss

LONDON - JULY 3: View of a shopping trolley and aisle at a Sainsbury's supermarket on July 3, 2014 in London, UK. Sainsbury's is

Sainsbury's decision to scrap multi-buy deals earlier this year isn't looking like a great move, with its latest figures showing a drop in sales.

During the first quarter, sales fell by 1.2% in what the company called 'challenging' trading conditions. And, says Kantar Worldpanel analyst Edward Garner, it's dropping multi-buys that's to blame.

"Sainsbury's 1.2% sales decline – which has led to a drop in its market share to 16.2% – has been driven by a decline in pack sales, which is the short-term result of shifting its promotional emphasis from multi-pack deals to straightforward price cuts," he says.

As a result of the change, according to Kantar, only 23% of shoppers' purchases are on special offer, compared with 30% last year.

The supermarket started phasing out multi-buy deals back in February, and expects to finish the process over the next two months. Customers, it said, found them confusing and often felt pressured to buy more than they need.

In future, there will be multi-buy deals only at certain times of year.

Chief executive Mike Coupe admitted the figures showed a 'slight step back', but insisted that ending multi-buy deals wasn't hitting trade. And, he said, the company planned to continue its strategy of making general price cuts rather than special offers.

"Food price deflation continues to impact our sales and pressures on pricing mean the market will remain competitive for the foreseeable future," he said.

Certainly, Sainsbury's isn't the only supermarket to report a fall in sales. Over the grocery market as a whole, sales grew by just 0.1% during the first quarter, and the big four have seen their combined sales fall by 2.9%.

"Sainsbury, like all of the large UK supermarkets, has come under pressure from price deflation and the rise of Lidl and Aldi, and is finding that its superstores in particular are struggling," says George Salmon of financial services advisor Hargreaves Lansdown.

However, there was good news for the supermarket in the form of its clothing sales figures, up nearly 5% over the quarter.

Sainsbury's is currently in the process of taking over Argos owner Home Retail Group in a £1.4 billion deal.

"On paper... the deal looks reasonable. However, as things stand both businesses have problems of their own to deal with, having reported falling profits," says Salmon.

"It is clear that Mr Coupe can see the challenges facing the businesses, for example the importance of developing multi-channel customer relationships. What's less clear is whether Sainsbury's or Argos can actually make decent money from any channels other than the old ones."

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