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It looks like Sainsbury's is going to try something new. But at what cost to SME?

It looks like Sainsbury’s is going to try something new. But at what cost to SME?

In the news this morning is the surprise news that Sainsbury’s supermarket has reported a full-year loss – the first in ten years, having weathered the worst of the recession and economic downturn. Obviously this is less surprising when you consider the amount of competition within the UK grocery market at the moment. With the big discounters such as Aldi and Lidl flying high, forcing Morrison’s and Asda particularly, to really change their game plan.

But what caught my eye was the news that Sainsbury’s have made a profit on non-food items. This is hot on the heels on a similar report about Tesco last week. It got me thinking what this means for small businesses throughout the UK. What knock on effects will there be if the major supermarkets start stocking non-food items in greater quantities and with greater diversity than before? How many high street and small sellers will this affect?

Sainsbury’s woes

Sainsbury’s is the UK’s third-largest supermarket chain but this morning it has reported a £72m loss in the year to March 2015. Their pre-tax profits fell 14.7% to £681m, compared with £798m in the financial year before to March 2014, with like-for-like sales falling 1.9%.

Because we're all eating out like royalty every night!

Because we’re all eating out like royalty every night!

According to chief executive Mike Coupe, “The UK marketplace is changing faster than at any time in the past 30 years which has impacted our profits, like-for-like sales and market share.” He – rather amusingly – suggests that ‘falling’ fuel prices (already on the up for the past month or so) and cheaper goods – customers have more money in their pockets and so “they tend to eat out rather than eating in so that has a drag on the supermarket industry.” Hmmm. Deluded, much? It could be that energy and fuel prices are high at a time when wages are still suppressed and people have less spending power. No-one I know is eating out every night, but more and more people are looking for cheaper food shopping – and they don’t find that in Sainsbury’s.

Hence the price war between the big four supermarkets and the discounters, Aldi and Lidl. Tesco announced reported losses of £6.4 bn just last week – the worst result of its 96 year history and by far the biggest loss ever suffered by a retailer in the UK. They’re still standing though. So the competition for food sales is fierce. Meanwhile we see that Sainsbury’s has stated that its non-food business is doing well.

Food sales are dropping

Food sales are dropping

Sainsbury’s and Tesco’s non-food sales

Sainsbury’s reports that sales of its general merchandise grew by more than 7%, with clothing sales up nearly 12% on the year before.

For Tesco, between December 2014 and February 2015 non-food sales were up 2.2% in like-for-like and it is thought that their non-food offering could well help to play an increasingly important role in the brand’s strategy in the coming months and years.

Sainsbury’s announced in April 2015 that they intend to convert 1.5m square foot of retail space – that’s equivalent to 40 supermarkets worth – from grocery sales space and dedicate it solely to non-food ranges. This will help to bolster its falling grocery sales.

Interestingly, research from Populus has shown that a significant majority (85%) of Britons say they would consider purchasing their underwear from a supermarket, and nearly eight in ten would also consider purchasing across DIY (78%) and Accessories (77%) categories. Even the big and more expensive items such as household white goods are of marked interest to customers when they are available at supermarket locations (69%).

According to Populus’ research, the consumers who would consider using supermarkets to buy their non-food items tend to be younger and in lower social groups – mainly because supermarkets are associated with low cost non-food items. At the moment supermarkets hold the monopoly on children’s clothing and school uniform, to the extent that most other children’s clothing providers and uniform shops, have ceased to exist.

Heavy discounts on food - non-food products next.

Heavy discounts on food – non-food products next.

The big four supermarkets seem to be losing a major battle over grocery pricing but of course what they do have that Aldi and Lidl don’t – is the real estate. All of the supermarket chains have huge stores located in premium positions all over the country. It wouldn’t take much to reinvigorate their stores by filling them up with non-food products, would it?

Knock on effects for small businesses

They have the advantage of being able to buy vast amounts in bulk and discount heavily in order to move stock. Their purchasing power is scary if you consider what the average small business has to contend with.

I know many small businesses are already disadvantaged when they buy goods, because if they can’t buy in volume they have to pay more for the smaller quantities they do purchase. The first rule of wholesale seems to be that the more you can buy the cheaper it is. This means that small businesses find it difficult to price themselves competitively when compared to larger businesses. One example of this is a friend of mine who was selling Gruffalo products. Initially her sales were good but then they dried up.

Save 50% on a High Street business? Coming soon!

Save 50% on a High Street business? Coming soon!

She discovered that her local supermarket were selling exactly the same products from the same supplier for half the price – a price that actually matched what my friend was paying for the products herself at wholesale cost! It was quite a shock and an eye opener of what small businesses can expect as the big four seek to reinvent themselves in the wake of the recession. Their buying power will put even more pressure on the high street and maybe force more small businesses to close.

Farmers have been complaining about supermarkets forcing their profits down for a long time. Supermarkets have the power to buy in what they like at prices that mean food suppliers struggle to make ends meet, while supermarkets still rake in the profits. Well karma is a mean mistress, and supermarkets have been bitten on the backside. Will history repeat itself with manufacturers, suppliers and distributors of non-food goods in the near future?

Who wins in this scenario? Probably just the supermarkets. And China.

Over to you

What are your thoughts? Do you see supermarkets as a threat or does the biggest threat to your business come from online sellers? What are you doing to fight back? Let us know below or join the conversation on Facebook.

One Response to “Sainsbury’s Profits Warning: Actually a forewarning to small businesses?”

AndyMay 13th, 2015 at 4:52 pm

I buy a lot of stuff from the supermarket and re-list on Amazon or Ebay,you can take advantage of there buying power during there sales and clearance periods you’ve just got to be a bit savvy and patient.

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