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Wage inflation and price cuts hit Sainsbury’s profits

Group profits down nine per cent due to ‘price investment, wage costs and Argos takeover' but sales rise as retailer improves food ranges

Wage inflation and price cuts hit Sainsbury’s profits

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Sainsbury’s has suffered a nine per cent fall in its half-year profits, with investment in price, rising labour costs and its takeover of Argos hitting its bottom line.

Underlying pre-tax profits at the retailer fell from £277 million to £251m in the 28 weeks to 23 September, while statutory profit before tax plummeted 40.8 per cent to £220m.

But the retailer said the corresponding £372m statutory profit figure, recorded in the same period last year, was inflated by the £116m propery gain from its Nine Elms investment in London and the £98m profit from the sale of its pharmacy business.

Despite the fall in profits, like-for-like sales excluding VAT rose 1.6 per cent, prompting Sainsbury’s to celebrate “positive momentum across the business”. 

This contrasts with a 0.6 per cent sales drop across the previous financial year (to 11 March 2017), which the supermarket attributed to currency fluctauation and the supermarket price war.

In this half, total grocery sales rose 2.3 per cent, consolidating grocery growth in the previous four quarters.

Chief executive Mike Coupe said: "We have delivered a good performance across the group in the last six months, with more customers choosing to shop at Sainsbury's in the first half than ever before. We are now three years into delivering our differentiated strategy and are seeing clear results."

Sainsbury’s attributed its drop in profits to price cuts, wage rises and the “consolidation of Argos H1 losses”, following its £1.4bn takeover of Argos and Habitat last year.

Over the past six months the retailer opened 73 more Argos concessions in its stores, bringing the total to 112. It plans to increase this to 165 by Christmas.

In terms of its core food offer, Sainsbury’s said it had improved 70 of its ranges since the start of the financial year, making changes to its own-label products that have lead to value and volume sales growth.

A further 50 range reviews are planned for the second half, covering 18 per cent of food sales.

Sainsbury’s Ripe and Ready fresh produce range was also updated, proving popular with customers who bought around eight per cent more volume in these products than the year before.

Over the summer, strawberries were sold in greater volume than any other product, especially in the Murano variety, which was launched exclusively to Sainsbury’s in 2014.

In overall groceries the retailer said it had improved its offer across 15 per cent of its supermarket space, adding 196 digital collection points, and rolling out its Smart Shop. This allows customers to scan their shopping with a handset or mobile phone and pay at a dedicated checkout.

Sainsbury’s has also launched 70 new food ranges and completed a checkout free shopping trial at its London Euston convenience store in September, with further trials planned.

Online grocery sales increased by over seven per cent, with the retailer’s Groceries Online app now contributing around 15 per cent of its internet grocery orders.

The reach of its same-day delivery service is also being doubled and will be offered from 93 stores by Christmas. Meanwhile, the one-hour Chop Chop grocery delivery service has been extended to five more stores in central London, taking the total to seven, and covering 1.7 million potential customers.

A 30-minute Click & Collect service is currently being trialled at Sainsbury’s Pimlico store in London. 

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