Sainsbury’s: Shelved New Store Scheme Leads to £290m First Half Loss

13 Nov 2014 --- Sainsbury’s has scaled back plans for new stores as it concentrates on the fight against discount rivals. The UK supermarket chain has announced plans to shelve a number of schemes in its property pipeline and plans to reduce the amount of money spent on new space over the next three years.

The cost of writing down the value of existing stores and sites which will now no longer be developed led to the supermarket giant posted a loss of £290million in the six months to September 27.

Underlying profits were better than expected at £375m but this still 6.3% lower than a year earlier. 

Mike Coupe, the company’s former commercial director who took over from Justin King as chief executive in the summer, said the industry was facing a once-in-a-generation combination of cyclical and structural change as customers use online, convenience and discount channels more often.

The company said: “We expect supermarket like-for-like sales in the sector to be negative for the next few years, but we have robust plans to address this challenge.”

Coupe revealed plans to invest £150m in price cuts over the next year and improve the quality of 3,000 own-brand products. He noted that at least a quarter of stores have under-used space and this would be used to expand its non-food offer over the next five years, and space may also be allocated for in-store concessions. 

Sainsbury’s will look for cost savings of £500m over the next three years and will reduce annual capital expenditure to as low as £500m over the next three years, compared with around £950ma year since 2012/13.

In the current financial year, the chain expects to deliver around 750,000sq ft of new space, with around two new convenience store openings per week.

This will reduce to 500,000sq ft of space in each of the next two years, followed by 350,000sq ft in 2017-18, resulting in just eight new supermarkets over that period.

Over half of its new space will be convenience stores as the company continues to target opening 100 smaller stores per year. The estate currently comprises 594 supermarkets and 660 convenience stores.
The convenience business grew sales by 17% to over £1billion, while the sale of groceries online grew by around 9% year-on-year.

Retail operating profits decreased by 11.8% to £388m as a result of lower like-for-like sales and investment in the customer offer, particularly in staple products, in order to remain price competitive.

Coupe said the company had examined every aspect of its business. He added: “We need to make sure that we are investing in the right areas and by reducing our costs and capital expenditure we are ensuring that we have the resources to enable us to do so.

“We will continue to differentiate ourselves from a position of strength by offering great products and services at fair prices, investing in the quality of our food and investing in price in areas where our customers tell us it matters most.”