The Week Ahead: All eyes on grocery sector with updates due from Sainsbury’s and Ocado

Mike Coupe, chief executive of Sainsbury's, which is due to deliver a trading update on Tuesday.

Mike Coupe, chief executive of Sainsbury's, which is due to deliver a trading update on Tuesday. - Credit: Archant

The City is this week expecting an update on Sainsbury’s battle to buy Argos owner Home Retail Group, and will also want to hear how online grocer Ocado plans to hold market share as US giant Amazon boosts its food division.

Supermarket group Sainsbury’s is expected to have improved sales when it updates the market on Tuesday ahead of the deadline for offers on Argos owner Home Retail Group.

Like-for-like sales excluding fuel look set to narrow to a fourth-quarter fall of 0.2%, compared to a drop of 0.4% in the previous three months, according to analysts at Jefferies.

The move would signal a boost for the Big Four grocer after the ongoing supermarket price war dragged down fourth quarter like-for-like sales excluding fuel to a fall of 1.9% last year.

Sainsbury’s will be looking to drum up a positive picture of the business before the deadline for formalising offers on Home Retail Group on March 18.

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The supermarket said it would create a “world-leading” retailer, bigger than rivals John Lewis and Amazon UK, when it tabled an improved £1.3billion offer for Argos owner Home Retail Group in February.

But South African retailer Steinhoff, which already owns UK furniture retailer Harveys and is listed on the Frankfurt and South African stock markets, has attempted to gatecrash the supermarket’s cash and shares deal, with an all-cash offer of £1.4bn.

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Sainsbury’s said approval of its bid would trigger cost savings of about £120m in the third full year after the deal is complete. It is estimated that around half the savings, £60m, would come from relocating Argos stores into Sainsbury’s supermarkets as concessions, as well as launching new Argos concessions and expanding Sainsbury’s click and collect service.

The supermarket also announced in February that it would be the first UK retailer to end multi-buy and buy-one-get-one-free promotions. The chain said it would sweep away the vast majority of these deals by August because customers find them confusing and are often forced to buy more than they need.

Online grocer Ocado is expected to boost sales when it posts its quarterly sales trading on Tuesday, but the City will want to hear about its plans to battle US online giant Amazon.

Last month Amazon struck a deal with Big Four supermarket Morrisons, which will see it offer hundreds of Morrisons products through its food delivery service Amazon Pantry and its subscriber service Amazon Prime Now.

The deal will give Amazon customers access to Morrisons fresh and frozen products, the supermarket said.

Morrisons chief executive David Potts said the combination of the supermarket’s “fresh food expertise and Amazon’s online and logistics capabilities is compelling”.

The market has long awaited Amazon’s push into the UK grocery market, which is gripped by a fierce price war with discounters Aldi and Lidl. However, online and convenience food sales are two of the few areas that are growing in the grocery market.

Ocado already has a £170m 25-year deal with Morrisons signed in 2013 to handle its online deliveries.

At the same time as it announced its tie-up with Amazon the supermarket said it would extend its relationship with Ocado by taking up space at the British online grocer’s new customer fulfilment centre in Erith, south east London.

Analyst Clive Black at Shore Capital said: “The significance of this for Ocado is that the commercial heat is rising in the pure-play grocery arena in metropolitan areas where Ocado is particularly active.

“More to the point, to add spice to the mixture, Morrison is enhancing Amazon’s competitiveness with a recently announced supply arrangement.”

Shore Capital added that it expects Ocado to post a 15% rise in first quarter gross retail sales, compared with a 13% increase in the previous quarter.

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