J Sainsbury PLC (LSE:SBRY) is seeing progress from its decision to prioritise food, that’s according to analysts at Royal Bank of Canada (RBC).
RBC, in a note, highlighted that grocery momentum has continued in Sainsbury’s first quarter, helped by approximately 2% volume growth and a strong performance in its premium Taste the Difference range.
The strategy to reallocate General Merchandise space to food is also expected to support volume growth through the second half of the year.
The broker noted that inflation remains a factor in the wider sector but said Sainsbury’s was “inflating behind the market”, which is helping to improve its value perception with consumers.
Taste the Difference sales were up 18% year-on-year in the quarter, with fresh categories performing particularly well, rising by 20%.
The note said Argos has shown better trends, supported by seasonal categories and new product launches such as the Nintendo Switch.
The retailer is focusing on full-price sales and digital investment to improve profitability.
General Merchandise sales are expected to fall due to space reductions, but this is intended to improve food availability and overall efficiency.
“We think Sainbiry's Food-focused approach is seeing traction with consumers, and we expect continued momentum to be supported by ongoing innovation (particularly for Taste the Difference) and also by a reallocation of General Merchandise space to Food,” RBC said.
The Canadian bank raised its price target to 305p from 300p and repeated an ‘outperform’ rating.