Coupe plays for time as he prepares for strategic review

There had been signs Sainsbury’s second quarter trading update wasn’t going to be positive for some weeks, but an actual sign displayed in the window of its Stratford store 24 hours before its Q2 update was released on Wednesday (1 October) inadvertently gave a taste of things to come.

The poster, meant for a staff area, read “let’s encourage every customer to spend an additional 50p during each shopping trip between now and the year-end”. This attempt to drum up sales prompted social media ridicule and was trending as #50pchallenge.

Though Sainsbury’s trading figures were better than the 4% like-for-like sales decline some analysts were predicting, the 2.8% drop, excluding fuel, shows that new CEO Mike Coupe - just 84 days into the role - has got some tough questions to address as he prepares to unveil his strategic review of the business on 12 November.

Coupe insists he has not been handed a hospital pass by his predecessor Justin King because “it was well over a year ago that he indicated that he might be thinking about moving on and I don’t think anybody this time last year could have predicted some of the changes that have happened in the marketplace since then.”

Those changes, Coupe says, are what he describes as a “perfect storm” of deflation, accelerated changing customer shopping habits and an increase in short-term pricing activity by rivals.

King always insisted the price war launched by Morrisons at the start of the year was just the “cut and thrust” activity of the market. Though Coupe falls short of admitting to a price war, he comes much closer than his predecessor.

“Undoubtedly there were price investments, particularly in commodities like milk, bread and eggs, earlier in the year which have been reflected throughout the last trading period,” he says. “But, equally, there has been significant deflation. There’s also been changes in interest rates which plays a part in the price of imported products.”

He points out that this time last year, inflation was running at 2% to 3% but is now 0% to 1%. And the price of milk, for example, was £1.29, versus £1 now. Potatoes are also 20% cheaper.

He readily admits Sainsbury’s has played its part in bringing down prices. Last week, the chain unveiled a new pricing strategy that saw it ditch Tesco from its coupon at till scheme Brand Match. The new approach follows 18 months’ worth of activity to lower the regular price of products. It said it was no longer tracking Tesco because customer research found shoppers viewed Asda as the benchmark on price.

However, the move has had a mixed reaction. One poster on MoneySavingExpert.com wrote: “Sainsbury’s is getting a lot cheaper lately. I like their fruit and veg dept, as it all seems to last longer and is not bad prices, compared to the other big four.” But another wrote: “I suspect they’re thinking Tesco will be going all out with a price war”.

Bryan Roberts, retail insights director at Kantar Retail believes the move could create confusion.

“Dropping Tesco comparisons from Brand Match appears a logical move given that Asda is the sector’s price leader, but then relentlessly comparing Sainsbury’s prices to Tesco prices in TV ads just muddies the waters,” he says.

To add to the price war, Sainsbury’s claims the long-running trend of more frequent, convenient shopping has accelerated in the past quarter, resulting in smaller basket sizes.

Arguably, Sainsbury’s is in a better place than many to take advantage of this. Its convenience business reached annualised sales of £2bn in Q2 - growing at about 17%. And to battle the discounters, it has a JV with Dansk Supermarked to bring Netto back to the UK. The first five trial stores in the JV will open in the first two weeks of November.

Coupe describes shoppers as “promiscuous”. “We’ve talked in the past about customers buying one item less and that trend is increasing,” he says. “Shoppers are shopping more frequently and when they shop, they buy less and tend to put fewer items in their basket.”

And are they spending 50p less than before? Coupe laughs that question off, but as the now notorious Stratford poster implied, he no doubt wishes they would.