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.
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.