Sainsbury’s is to make £60m more in annual profits than predicted after enjoying better than expected food and drink sales over Christmas as shoppers bought more champagne than ever before.
The UK’s second biggest supermarket said grocery sales rose 0.8% in the six weeks to 8 January, excluding Boxing Day, when it chose to close this year, as more people dined at home as the Omicron wave of Covid-19 put a dampener on trips to restaurants and pubs.
Total sales slipped 2.4% over that period as the company said problems with the supply of electronic goods, TVs, gaming kit and toys hit trading at the group’s Argos chain .
Simon Roberts, the chief executive of Sainsbury’s, said supply chain issues, driven by hold-ups with international shipping and production at factories in east Asia, were likely to continue for some weeks or months.
Roberts said Sainsbury’s had taken on 22,000 temporary workers at Christmas, 10,000 more than a year before and 12,000 more than in 2019, as it tried to fend off staff shortages and keep shelves stocked in the face of the Omicron wave while handling additional home deliveries.
About 15,000 of those temporary staff have stayed with the business into January as Roberts said Sainsbury’s was dealing with high absence rates resulting from Omicron. He said London stores were particularly affected by staff shortages but UK-wide absences were about half their peak at the start of the pandemic.
Despite the fall in sales, Sainsbury’s said profit margins on non-food had improved as it had cut down on discounting. Online grocery sales were down 15% year on year but still almost double pre-pandemic levels.
Sainsbury’s now expects to make underlying profits of £720m for the year to 8 January, up from £660m, with profit expectations boosted by the better than hoped for grocery sales, improved profit margins on non-food and lower than feared bad debts at its banking arm.
Cost savings from closing delicatessens and other fresh food counters in stores, closing high street Argos outlets and shifting them into supermarkets, and merging distribution for Sainsbury’s and Argos also paid off.
Roberts said: “I am really pleased with how we delivered for customers this Christmas. More people ate at home and our significant investment in value, innovation and service led to market share growth.”
He said Sainsbury’s had gained share from rivals as it had cut prices on average despite inflation in the market. Sainsbury’s matched the discounter Aldi’s prices on key Christmas foods, such as turkey, sprouts, potatoes and gammon joints, pushing up sales volumes of those items by 23%.
Sainsbury’s said it had seen its biggest ever sales of champagne, contributing to its best ever new year trade, while there was a surge in demand for last-minute online orders from Argos.
The late surge came at the end of a tricky quarter in which sales at established stores were down 4.5%. Sales at Argos were down 16% in the three months to 8 January and clothing down almost 3% but Sainsbury’s said this was partly the result of a reduction in unprofitable discounting. It said full-price clothing sales rose 38%.
Sophie Lund-Yates at Hargreaves Lansdown said Sainsbury’s had been able to strike the right balance in taking on the discounters on price but offering the right products.
But she added: “As we embark on the new year there are some lingering challenges. General merchandise sales remain subdued, and while current events including supply chain disruption are partly to blame, there are structural declines in some markets. Sainsbury’s is especially exposed to this market thanks to the acquisition of Argos.”