UK Grocers - comment

First of the grocers, Sainsbury’s, reported this morning. It is a difficult narrative for the grocers to tread with profitability likely to rise in the current inflationary environment. Top-line sales have risen but by less than the headline food inflation, which implies lower volume overall which is at odds with Sainsbury’s statement that they have “relatively resilient volume trends”. What is apparent, is Gross margin has improved, with Sainsbury’s now guiding to the upper end of their previous guidance range. Note, Sainsbury’s only release top-line numbers with no details on margins or costs.

The missing item is the own-label product. As seen in the Kantar data, and alluded to by Sainsbury’s, its own label sales has increased. This enables the grocers to maintain and increase margins while their basket inflation appears lower than the headline numbers. Our take is that Grocers have raised prices, volumes have declined, but not by as much, and with the push towards own-label products, underlying profitability has improved.
Sales were up 5.6% in the quarter and 7% for the 6 weeks including Christmas, which lags the headline food inflation figure of 14%. Volumes must have taken a hit, but we can’t deduct actual volume figures.