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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