Sainsbury’s is defying its legion of doubters

It was a mostly happy Christmas for Sainsbury’s, which trumpeted “record sales” over the festive period and also said its earnings would come in at the “upper end” of a range that tops out at £690m.

Britain’s number two supermarket reported a third-quarter increase in grocery sales of 5.6 per cent, rising to 7.1 per cent over the six weeks to 7 January. Its customers seem to have shrugged off the ongoing cost of living crisis to indulge themselves in a festive splurge, at least those with the capacity to do so.

The record the group hailed does, however, demand some explanation. With food price inflation running at over 16 per cent by some measures, you can sell quite a bit less product and still report record sales because of the higher prices you’re selling it. Because of that, anything less than a record on the part of Sainsbury’s could actually have been considered quite the disappointment.

Sales volumes – the number of items going through the checkout – give a truer picture of how this company is doing. They tell us that the group’s Christmas wasn’t quite so joyous as the headline figures would have you believe. On the other hand, the fact that Sainsbury’s drew attention to them at the top of its stock market announcement also says that they too have provided the chief executive Simon Roberts with reasons to feel cheerful, particularly by comparison with the rest of the market.

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It made me chuckle that the grocer called upon data from researcher Kantar to show it’s ahead of the volumes game: Supermarket bigwigs often grouse about the latter’s survey, which is based on the shopping baskets of a 40,000-strong demographically representative panel, that is until it makes them look good. Kantar’s numbers did that for Sainsbury’s, showing that while its volumes were down a smidgeon on last year it did better than the rest of the traditional big four supermarkets (Tesco, Asda and Morrisons). It was also ahead of the market as a whole over the festive season and when compared to the pre-pandemic period.

Aldi and Lidl were, of course, on a different planet. While much of their growth may come from new openings, they are still adding to their market share and fast. But even in the face of the competitive threat the discounting German pair pose, Sainsbury’s is managing to hold its own. It is threading a very difficult needle, managing to limit price inflation (at least relative to its peers) while increasing its workers’ pay and keeping its investors sweet.

We know the cost of living crisis has hit the poor the hardest and I suspect some of its advantage comes through the fact that its estate is weighted towards more prosperous parts of the UK; notably the South East of England. But even with that, Sainsbury’s is still pulling off a neat trick, accomplished in no small part by an aggressive cost-cutting programme. Sainsbury’s stores have fewer frills as a result. Bakeries and fishmongers have vanished. Shoppers don’t much care so long as the price is right and for now, it is.

Grudging praise is perhaps the best way to describe the reaction of analysts and the City. They’ve had a bit of a downer on the group but they may have to reassess.

Mr Roberts has, meanwhile, been putting himself about a bit of late, giving interviews, delivering turkeys and generally trying to acquire a little celebrity CEO stardust.

He has the numbers to back it up but he needs to have a care. The going will be heavy over the coming year. The Argos division did well as a result of the disruption to deliveries over Christmas, but its general merchandise won’t be helped by recession. Tesco has more financial firepower than Sainsbury’s does and it could cause a problem if it chooses to get aggressive. Even Morrisons picking itself off the floor would add some competitive heat to a market that has no shortage of it.

Mr Roberts is, in other words, going to have to run very fast simply to stand still. But perhaps someone bought Pelotons for the offices of him and his team. The results show that have been doing that rather effectively over the last year or so.