Sainsbury's warns of dividend cut

Sales and profits have fallen at the supermarket as middle-class shoppers head to Lidl and Aldi.

J Sainsbury's first-half results provided further evidence of the turmoil in the supermarket sector, with another drop in like-for-like sales and a 6.3% decline in underlying profits in its first half. It warned that profitability is set to fall in the second half, while its final dividend is likely to be lower than last year's.

What's more, sales from supermarkets open at least a year will be "negative for the next few years". Sainsbury's has scaled back plans for new stores and aims to cut costs by £500m over the next three years. That will pay for the £150m of price cuts it is introducing over the next year to fend off the German discounters Aldi and Lidl.

What the commentators said

"The establishment of a war chest to fund price investment might help mitigate some advances" by the discounters, said Kantar Retail's Bryan Roberts. But Sainsbury's isn't spending as much on price cuts as some of its rivals, and price is only part of the story. The discounters have smaller shops and fewer product lines, so shopping is quick and easy.

There has also been a broad change in shopping habits, noted Sarah Butler in The Guardian. People are shunning the superstores and big weekly shopping expeditions in favour of buying more locally and more frequently.

They are looking for better deals, trying new brands, and wasting less, as well as buying more online. These trends are boosting convenience stores and discounters.

"The middle classes are on the move," added John Ibbotson of Retail Vision, "and their destinations are Aldi and Lidl." They have also tended to opt for Waitrose when splashing out. On the plus side, while Sainsbury's is still adding space, a third of it is in convenience stores.

But the longer-term outlook remains murky. It's not clear that it "has the market savvy to stop the grand [middle class] exodus and retain a core customer". The conclusion is that "just like the old British empire, the big four are now in an irreversible decline".

Recommended

Broker safety – your questions answered
Investment strategy

Broker safety – your questions answered

Cris Sholto Heaton answers more of your questions about the safety of stockbroker accounts
25 Mar 2020
How demographics affects stock valuations
Investment strategy

How demographics affects stock valuations

New research suggests that stock and bond valuations are driven by the age of the population – at least in the US.
24 Feb 2020
Do you own shares in Sirius Minerals? Here’s what you need to do now
Stocks and shares

Do you own shares in Sirius Minerals? Here’s what you need to do now

Mining giant Anglo American has proposed a cash takeover of Yorkshire-based minnow Sirius Minerals. Unhappy shareholders must decide whether to accept…
20 Feb 2020
Why investors should be “cautiously bullish” for 2020
Stockmarkets

Why investors should be “cautiously bullish” for 2020

Analysts have been out in force making rosy predictions for stockmarkets in 2020, but while there is certainly a case for optimism, investors should r…
17 Jan 2020

Most Popular

Here’s why you really should own at least some bitcoin
Bitcoin

Here’s why you really should own at least some bitcoin

While bitcoin is having a quiet year – at least in relative terms – its potential to become the default cash system for the internet is undiminished, …
16 Sep 2020
Will a second wave of Covid lead to another stockmarket crash?
Stockmarkets

Will a second wave of Covid lead to another stockmarket crash?

Can we expect to see another lockdown like in March, and what will that mean for your money? John Stepek explains.
18 Sep 2020
James Ferguson: How bad data is driving fear of a second wave of Covid-19
UK Economy

James Ferguson: How bad data is driving fear of a second wave of Covid-19

Merryn and John talk to MoneyWeek regular James Ferguson about the rise in infections in coronavirus and what the data is really telling us.
17 Sep 2020