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11% surge in online grocery lifts Sainsbury’s sales to new heights, Argos too

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Sainsbury’s has reported robust growth for Q1, posting like-for-like total retail sales growth of 8.2%, boosted by strong growth in ecommerce in the grocery (11%) and merchandise (7.2%) segments.

Online sales at the retail giant more than doubled through the quarter, showcasing a similar theme as that of Tesco, which also reported a doubling of online sales last week.

Sainsbury’s also reported that as many as 50% of new online sales came from customers who have never bought from the retailer online before.

Sainsbury’s-owned Argos also performed well online despite all stores being shut growing 10.7%.

For online groceries, sales grew 87% year on year, with orders increasing from 370,000 to 650,000 per week. However, clothing sales dropped off by 26.7%, although the retailer said that there were signs that that was starting to pick up.

Chief executive Simon Roberts comments: “Our business has changed fundamentally from four months ago. We have more than doubled our weekly sales of online groceries in recent weeks and Argos sales were strong while operating as an online-only business for almost twelve weeks.”

Roberts continues: “Warm weather boosted food sales and sales in seasonal categories in Argos, but sales of clothing and fuel and trading in city centre convenience stores were all significantly down year on year as a result of lockdown.”

However, Roberts warned that he was “cautious” about the rest of the year, adding that a further weakening of consumer spending was “likely”. It “remains impossible to predict the full nature, extent and duration of the impact of COVID-19 on sales and costs,” he told analysts.

What the experts say

Michael Schirrmacher, UK Managing Director at Bloomreach, believes that Sainsbury’s should be a lesson to all retailers that the key to winning in the current environment is having a good digital offering.

“As more and more consumers migrate online to purchase anything from food and clothes to medicine and even children’s toys, businesses are fast realising that they can no longer afford to have a weak online presence: today, shoppers are more likely to connect with a brand online first before making their way to a high street branch,” he says.

According to Bloomreach’s State of Commerce Experience report, 90% of customers have changed their behaviour as they avoid physical stores, putting discretionary spending on hold and buying exclusively online or as much as possible. Half of customers even said that they are shopping on digital channels for products they’ve never bought online before.

And this is having a huge impact on investment: in the same report, the company found that investment in brick and mortar stores has dropped by almost 30% since the start of the lockdown (from 52% to 24%).

“This shows that businesses understand the urgent need to enhance the digital experience they are offering customers who all think digital first,” says Schirrmacher. “Shoppers are more unforgiving than ever before when it comes to a bad digital experience, and brands simply can’t afford to lose customers to their competition because a product was hard to find, or it took too long to load a page. Whether your business is in survival, adaptive, or growth mode, now is a critical time to reallocate funding to deliver enhanced digital experiences and set your business up to be more competitive as the world shifts to a new normal post-pandemic.”

Neil Shah, Director of Research, Edison Group, sounds a note of caution. “Despite strengthening sales, increase in costs related to reacting to the crisis will clearly weigh in or earnings this year as the company expects flat underlying pre-tax profit for the 2020-21 year.”

He adds: “All of the UK’s major supermarket groups have seen grocery sales boosted during the lockdown, and both Sainsbury and Tesco have been clear winners of the back of their vast network of superstores supported by an increase of online demand and local convenience stores.”

Shah concludes: “However, investors should keep a close eye on Sainsbury and be slightly cautious around the company´s growth over the past months. With lockdown easing and normality returning, it will be interesting to see how the company, who has been losing market share for the past few years, manages to keep up with their positive sales and growth.”

Joe Healey, Investment Research Analyst at The Share Centre adds: “This is a strong update from Sainsbury which has performed better than expected as it continues to invest in lower prices alongside improving its stores.”

Healey continues: “The group has also showcased its flexibility to manage the increase in capacity from the pandemic effectively. Nearly 50% of new online groceries are from new customers with the supermarket now taking over 650,000 orders a week compared to just 370,000 pre-crisis. The flexibility to double capacity speaks volumes of the technology and digital platforms Sainsbury operate and will be something investors will be very pleased with moving into the future.”

He concludes: “However, it’s important for investors to remember these results were always going to be higher thanks to the combination of consumers purchasing bigger baskets and good weather. Whether this theme will continue is unlikely. It is prudent to see management are not expecting this sales growth to continue considering the uncertainty we still have surrounding consumer spending and something which investors should bear in mind.” 

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