1. Comment
April 30, 2020

Sainsbury’s defers dividends as it braces for Covid-19 profit impact of over £500m

By GlobalData Retail

After a successful Q3 (Christmas) trading period, Sainsbury’s was likely feeling optimistic about 2020 but the arrival of Covid-19 has, as with all of its multi-sector rivals, upended plans as it looks to cope with soaring grocery demand (+12% for seven weeks to 25 April) while mitigating losses across Sainsbury’s non-food (-22%) and the clothing (-53%) divisions.

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Because of the unprecedented disruption, Sainsbury’s now expects around a £500m+ impact on profit for the year, and has made the decision to forego its full-year dividend. This comes in sharp contrast to biggest rival Tesco, who moved ahead with a £635m dividend following its own recent results.

One ace up Sainsbury’s sleeve is its previously questionable integration of Argos into the main fascia. Despite the closure of Argos’s 573 standalone stores, customers have been allowed to collect online orders from open Sainsbury’s branches. With Argos sales rising 9% in the past seven weeks (including a 63% rise in the same week the standalone stores closed), the format has clearly proven a popular one as the choice in non-food retailers dwindled entering lockdown, giving housebound consumers some retail options across gardening, electricals, smaller homewares and food preparation categories. Heavy investment over the past few years has seen Argos’s online platform become more user friendly, and as a result, we expect Argos to retain a chunk of its raised customer base even as the impact of Covid-19 lessens.

Sainsbury’s results also shed light on how it expects retail to evolve for the remainder of 2020. Its expectation that operational disruption will abate by the end of H1 (mid-September) is an optimistic one, particularly a ‘return to normal grocery market conditions’ by H2; we expect a more permanent higher demand for home delivery as worries overcrowded locations persist and previously offline-only consumers adapt to the new way of shopping.

Sainsbury’s online grocery operation (which grew 7.6% in the 52 weeks to 7 March) will certainly be coming under strain as it increases delivery slots (capacity up 50% as of 10th April), but Sainsbury’s must prepare for more significant, longer-term demand, especially as the likes of Ocado/M&S and Waitrose forge ahead with ambitious online growth plans.

Free Whitepaper
img

What is the impact of China’s Zero-COVID lockdowns on economic activity, consumer goods and the foodservice industry?

While wanting to protect the country from being overwhelmed by Omicron, China’s adherence to a Zero-COVID policy is resulting in a significant economic downturn. COVID outbreaks in Shanghai, Beijing and many other Chinese cities will impact 2022’s economic growth as consumers and businesses experience rolling lockdowns, leading to a slowdown in domestic and international supply chains. China’s Zero-COVID policy is having a demonstrable impact on consumer-facing industries. Access GlobalData’s new whitepaper, China in 2022: the impact of China’s Zero-COVID lockdowns on economic activity, consumer goods and the foodservice industry, to examine the current situation in Shanghai and other cities in China, to better understand the worst-affected industry sectors, foodservice in particular, and to explore potential growth opportunities as China recovers. The white paper covers:
  • Which multinational companies have been affected?
  • What is the effect of lockdowns on foodservice?
  • What is the effect of lockdowns on Chinese ports?
  • Spotlight on Shanghai: what is the situation there?
  • How have Chinese consumers reacted?
  • How might the Chinese government react?
  • What are the potential growth opportunities?
by GlobalData
Enter your details here to receive your free Whitepaper.

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