Sainsbury’s results are a reminder that UK supermarketing is ruthlessly competitive

Despite a rise in 7.3% sales, Sainsbury’s posted a pre-tax loss for 2020 of £261m, due to the cost of securing its stores during the pandemic, paying workers bonuses for stepping up during the crisis, taking on temporary staff, closing over 400 standalone Argos stores, general restructuring, and write downs at its banking operation.

Clothing and petrol sales were down for obvious reasons, but made up for by food and Argos.

Profits will recover in 2021 because the Argos costs will have been fully written off; offline Argos will now be more fully embedded in stores while online will continue to grow.

However, like all supermarkets that pick from store for on line orders – and Sainsbury’s saw online grow from 8 to 17% in 2020 – the retailer will struggle to generate profit. Fulfilling an order for home delivery is not profitable, minus 15% in fact, while for click and collect, it is minus 5%. Unless you are Ocado, which took 15 years to make a profit, the retailer will need to focus on faster and more efficient picking, and replenishment that does not cannibalise in store demand.

Problem is, there are few economies of scale in home delivery and supermarketing operates in very tight margins so a shift, say, to dark stores, will be costly as well as the systems to run fulfilment. Which is why more and more retailers are investing in Ocado and buying into their model. What we don’t know yet is whether this will be profitable for them.

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