Sainsbury’s hasn’t taken its eye off the grocery ball. But will Nisa prove a distraction

It wasn’t long ago that analysts dubbed Argos a “get out of jail free” card for Sainsbury’s. Three months ago, its newly acquired general merchandise business was the only thing offsetting flagging grocery sales.

What a difference a quarter makes. In what Sainsbury’s CEO Mike Coupe hailed as its most positive trading update “for a couple of years”, the supermarket posted 3% growth in like-for-like grocery sales for Q1. There was a note of triumph in Coupe’s voice when he proclaimed customers had responded to Sainsbury’s “differentiated offer” – a phrase that has been much repeated in recent quarters but, until now, without the numbers to back it up.

The signs do appear positive. The majority of growth came from own-label sales, suggesting Sainsbury’s efforts to develop its food offering are working. The supermarket added 430 new products to its own-label range over the past quarter – including 250 summer food ranges and 43 ready meals – and has conducted 32 range reviews.

This apparent success does come with some qualifying statements. The 2.3% overall growth in Sainsbury’s like-for-like sales was admittedly buoyed by a late Mother’s Day and Easter to the tune of 0.3%. Falling consumer confidence in the wake of the Brexit vote could also, ironically, have played into Sainsbury’s hands. Shoppers may well have favoured eating in over eating out and, by the same logic, turned increasingly to own label.

But Coupe was convincingly confident of Sainsbury’s role in driving the sales growth. “We like to think customers have responded to our changes,” he said. “We’re actually not seeing a massive change in consumer behaviour. Our view is they are broadly in the same place that they were at Christmas.”

Whatever the reason, analysts can no longer accuse Sainsbury’s of dropping the ball on its core grocery business. One analyst described this quarter’s performance as “little short of a Lazarus moment”; another hailed it as “a good start to the year across all channels”.

Competition

However, Sainsbury’s knows it can’t bask in glory for too long. Coupe readily acknowledged the ever-increasing competition from Amazon, Lidl and Aldi – not to mention a very ambitious Tesco keen to capitalise on its deal with Booker. All of which may lead to Sainsbury’s next “management distraction” after Argos: Nisa. Coupe remained tightlipped on the potential deal, simply repeating that large companies “have conversations with people all the time” and these “conversations” often come to nothing.

Yet the sheer volume of speculation around Sainsbury’s and Nisa suggests this is more than your average conversation. If that is the case, it may not be long before Coupe is once again batting off suggestions he is ignoring the core business.