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

Best junior stocks and shares ISA platforms
Isas

Best junior stocks and shares ISA platforms

A junior stocks and shares ISA is a great way to save for your child tax-efficiently. But it can be confusing deciding which investment platform to ch…
25 Nov 2022
Share tips of the week – 25 November
Share tips

Share tips of the week – 25 November

MoneyWeek’s comprehensive guide to the best of this week’s share tips from the rest of the UK's financial pages.
25 Nov 2022
Investing in a recession: 5 moves investors should make now
Investment strategy

Investing in a recession: 5 moves investors should make now

As we enter a recession, here’s what investors should do with their portfolios.
23 Nov 2022
It’s time to focus on Fuller’s
Share tips

It’s time to focus on Fuller’s

The pub sector has had a torrid two years, but this group is resilient and poised to prosper. We take a closer look at Fuller’s.
21 Nov 2022

Most Popular

Wood-burning stove vs central heating ‒ which is cheapest?
Personal finance

Wood-burning stove vs central heating ‒ which is cheapest?

Demand for wood-burning stoves has surged as households try to reduce their heating costs this winter. But how does a wood burner compare with central…
29 Nov 2022
Fan heater vs oil heater – which is cheaper?
Personal finance

Fan heater vs oil heater – which is cheaper?

Sales of portable heaters have soared, as households look to cut their energy costs. But which is better: a fan heater or an oil heater? We put them t…
21 Nov 2022
Best regular savings accounts – November 2022
Savings

Best regular savings accounts – November 2022

You can earn an attractive rate on the best regular savings accounts. We tell you the best on the market to take advantage of right now
29 Nov 2022