Sainsbury's warns of dividend cut

published 13 November 2014

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.

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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".

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Andrew is the editor of MoneyWeek magazine. He grew up in Vienna and studied at the University of St Andrews, where he gained a first-class MA in geography & international relations.

After graduating he began to contribute to the foreign page of The Week and soon afterwards joined MoneyWeek at its inception in October 2000. He helped Merryn Somerset Webb establish it as Britain’s best-selling financial magazine, contributing to every section of the publication and specialising in macroeconomics and stockmarkets, before going part-time.

His freelance projects have included a 2009 relaunch of The Pharma Letter, where he covered corporate news and political developments in the German pharmaceuticals market for two years, and a multiyear stint as deputy editor of the Barclays account at Redwood, a marketing agency.

Andrew has been editing MoneyWeek since 2018, and continues to specialise in investment and news in German-speaking countries owing to his fluent command of the language.