Are there any options open to Sainsbury’s to combat falling profits?

Common to all recessions since the early 80s is that the top and the bottom of the retail market does well, while the middle gets squeezed. This therefore probably explains why Sainsbury’s just announced that sales had risen 4.4% while profits fell 29% in the first half.

Holding down prices to compete with Aldi and Lidl is a tough job. Sainsbury’s isn’t Aldi so speculation as to why the former can’t run a leaner, and therefore cheaper, supply chain than the latter shows an ignorance of how the two businesses are different. A Sainsbury’s supermarket stocks around 30,000 SKUs against 7,500 for Aldi and Lidl. These businesses have few similarities other than the fact that they both serve a customer facing over 10% inflation in food prices, and higher mortgage, rent and energy costs.

Sainsbury’s, with currently 14.9% of the UK food retail market, has few options if it expects to maintain standards whilst holding down costs, and yet continuing to invest in sustainability. The media is full of stories about all the good things that the company is doing to help its customers, but nothing about what it can do to protect its own margins.

There are no obvious answers other than to focus ruthlessly on availability, a figure that is off all year round, but can be particularly bad at Christmas, although that is understandable as no one can really predict what this year will be like. However, the company’s Xmas recruitment plan should include a much larger number of staff to ensure the shelves are full and accurately stocked.

Getting the best out of them will depend on equipping them with the right data so they can manage their tasks efficiently. The company announced in 2020 that it was investing in AI from Blue Yonder but we have heard nothing since. A call to Blue Yonder has yet to be answered.

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