With first-quarter sales at J Sainsbury PLC (LON:SBRY) making for more glum reading, chief executive Mike Coupe is likely to face a frosty reception at the group’s AGM on Thursday.
The elephant in the room will undoubtedly be the botched merger with Wal-Mart Inc (NYSE:WMT) owned Asda, which if successful would have seen the combined entity leapfrog Tesco PLC (LON:TSCO) to become the UK’s largest supermarket chain.
READ: Sainsbury's sales drop without royal wedding, heatwave and World Cup
However, the dream of being “in the money”, as Coupe famously hummed shortly after announcing the proposed tie-up, has now been dashed by the Competition and Markets Authority, leaving a huge question mark over the future of both the CEO and Sainsbury’s itself.
“Now that a merger with Asda is no longer going to save the business, Sainsbury’s has to go it alone and find a way to survive and – most importantly – prosper”, said Russ Mould, investment director at AJ Bell.
However, Mould added that it was hard to identify Sainsbury’s “edge” and how exactly it will bounce back.
While the firm did report on Wednesday that it was now the fifth biggest clothing retailer by volume with market share gains in its Tu range, Mould said this was only part of the mix and wouldn’t be able to save the business.
“There is still a sense that Sainsbury’s doesn’t really know what it wants to be. Without a unique selling point it will be hard to have clear marketing strategies, targeting the right type of people and commanding customer loyalty”, he added.
Pay packet palava
Aside from more overarching questions around strategy, Coupe could also be facing down a shareholder rebellion over his pay package.
Media reports have indicated that investment advisory firm Pirc has told shareholders to vote against Coupe’s payout as well as the re-election of Sainsbury’s chairman Martin Scicluna, who has only been in the job since March.
Investor anger has been simmering since Coupe was awarded a £3.9mln payout in 2018 despite the failure of the Asda merger.
Michael Hewson, chief market analyst at CMC Markets UK, said that a significant vote against Coupe’s pay would be “hugely embarrassing”, while the CEO was also likely to come under fire for accepting a bonus despite the shares having tumbled to their lowest level for 30 years, with any further declines running the risk of having Sainsbury’s booted from the FTSE 100.
Ian Forrest, investment research analyst at The Share Centre, added that the sinking shares were “a clear reflection” of investor concern and that he wouldn’t be able to argue if any of them decided to jump ship.
Discounters and sector troubles loom
Capping off Sainsbury’s woes is the ever-looming threat of the encroaching discounters Aldi and Lidl, which once again have been steadily chipping away at the market share of the big four UK grocers.
In the latest set of Kantar data, Sainsbury’s saw its share of the market dip 0.3 percentage points (ppts) to 15.3% as sales dropped 0.6% in the 12 weeks to 16 June.
By contrast, Aldi managed to grow its market share by 0.5 ppts to 7.9% as sales gained 9.3%, while Lidl’s market share increased 0.3 ppts to 5.7% and its sales rose 9.3%.
READ: Tesco, Sainsbury's, Asda and Morrisons lose more market share to Aldi and Lidl
The wider sector was also unlikely to bring much of a silver lining with Clive Black, retail analyst at broker Shore Capital, noting that “challenging market conditions” and weak consumer sentiment would act as a brake on any growth in like-for-like sales for the UK’s supermarkets.
“All in all…we are more nervous about the robustness of sector forecasts and within that context, Sainsbury's too”, Black said.
In mid-afternoon trading on Wednesday, Sainsbury’s shares were down 1.8% at 196p.