Despite online sales going from 8% to 17% of total grocery and with Argos digital sales up 68%, Sainsbury’s has posted a 39% drop in underlying profits for 2020/21.
Strong food sales have been outweighed by the costs of rapidly adapting to being COVID-safe. Grocery sales rose 7.8% and general merchandise sales increased 8.3%, however the company said it incurred an extra £485m in costs due to the COVID-19 crisis. The retailer also declined business rates relief offered by the government, which was worth about £410m.
On a more positive note, the retailer has grown online groceries to 17% of total sales and has gained some market share in the fiercely competitive online grocery sector. Argos has also continued its transformation to offering a wider range and better delivery, which as seen its online sales rise 68%. The retailer has also improved the reach of Habitat, making it the retailers leading furniture and homeware brand.
As a result, Sainsbury’s says that it still expected underlying pre-tax profit in the 2021/22 year to rise and is comfortable with analysts’ consensus forecasts of around £620m.
Simon Roberts, CEO, says: “This year’s financial results have been heavily influenced by the pandemic. Food and Argos sales are significantly higher, but the cost of keeping colleagues and customers safe during the pandemic has been high.”
Roberts stresses that the company has a “bold three year plan” to put food back at the heart of the company and that work is already underway.
“We have accelerated our digital transformation this year as we focus on servicing customers however they want to shop with us. We have more than doubled online grocery sales and have done this while improving profitability,” he says. “Argos digital sales grew almost 70% and our Argos transformation plan is on track to improve customer availability while reducing costs.”
James Andrews, personal finance expert at money.co.uk, comments: "While supermarkets have been seen as among the winners of the pandemic - it’s not been without cost. Sainsbury’s profit hit shows just how much they’ve spent on Covid safety, up to £485 million, as well as the restructuring of Argos.
“It’s also shown how fast the move to online ordering has accelerated - with part of that £485 million spent on new slots and capacity added. “
He continues: “The outlook statement shows that this isn’t a flash in the pan, with extra capacity here for the long term and deals signed with the likes of Deliveroo not going away any time soon. However, Argos’s sales rising by 11% shows it’s restructure is one positive to come from the last quarter for Sainsburys."
Andrews concludes: “With fuel sales expected to be on the rise again too, we can expect continued strong performance - but competition from the likes of Aldi and Lidl hasn’t gone away. The following year for the industry will definitely be one to watch to see how the company reacts to society opening up, as well as how effective new price matching schemes will be."