Sainsbury’s slumps to £261m loss on back of Covid costs

Sainsbury’s has dived to a £261m annual loss despite booming sales of groceries during the pandemic, as it spent millions of pounds on protecting staff and customers from the coronavirus.

The UK’s second biggest supermarket said it had spent £485m on special bonus payments for staff who worked through the pandemic, extra staff to cover those who were isolating, additional safety measures in stores and pay for vulnerable staff who had to stay at home.

Profits were also hit by £423m of one-off restructuring costs, including the planned closure of more than 400 Asda standalone stores, as well as more than £200m in writedowns relating to the group’s banking operation and the value of its stores.

Grocery sales rose 7.3%, as sales online more than doubled, while general merchandise sales, which include the Argos chain, were up by just over 9% in the year to 6 March.

Sainsbury’s said total sales remained almost flat at £29bn as drivers put less petrol into their cars during the lockdowns and clothing sales slid almost 9%.

The company’s hefty annual loss came after a £255m pre-tax profit a year before. Sainsbury’s said it was on track to exceed 2020 profits in the year ahead.

The company said it had started the year strongly but was “prudent” about the months ahead when it expected customer behaviour to normalise.

“This year’s financial results have been heavily influenced by the pandemic. Food and Argos sales are significantly higher but the costs of keeping colleagues and customers safe during the pandemic has been high,” said Simon Roberts, the chief executive.

He said Sainsbury’s was “getting excited about a summer of celebration” but was also “cautious about the economic outlook”.

Sainsbury’s has added 400 new outdoor and barbecue products to its ranges as it expects families to meet up outside. Roberts said he expected alcohol sales in supermarkets to continue to be strong despite the reopening of pubs, with families choosing to celebrate at home.

Roberts admitted the return to pubs and restaurants would put a dampener on sales growth. However, he expects more people to work from home at least two or three days a week, thereby preparing more of their own meals and giving a long-term boost to supermarkets.

He said Sainsbury’s would be accommodating the shift in behaviour by opening 18 more small neighbourhood supermarkets, which will include clothing and Argos pickup points, and a further seven convenience stores. However, the group also expects to close 25 convenience stores in the year ahead as it shifts away from locations that are now less popular, such as city centres.

In the past year, sales in less urban locations were up 13% compared with an overall 9% drop in sales at convenience stores.

“I think it’s really clear that the likelihood of people going back to the office five days a week is not what’s going to happen. Our expectation is of a hybrid approach where our convenience estate is well positioned and reflects that change in how customers live, work and shop,” he said.

Sainsbury’s has closed offices as it shifts to permanent “hybrid working”, including more working from home, and Roberts suggested head office staff could also work from stores, carrying out meetings via video conferencing.

The group plans to close up to 20 supermarkets over the three years from 2019, five more than previously predicted, and to close up to 65 convenience stores over that period, up from a maximum of 40 announced before the pandemic hit.

It expects online grocery shopping, which has risen to 17% of sales compared with 8% before the pandemic, to slip back slightly but not to its former levels.

Roberts said online deliveries were profitable and he was confident the system could become even more efficient. Sales via rapid delivery, using Deliveroo, Uber Eats or Sainsbury’s own Chop Chop service, have grown particularly quickly, now totalling £50m from almost nothing four years ago.

Sainsbury’s slide into the red comes after it joined other supermarkets in returning millions of pounds of business rates relief after criticism. Sainsbury’s paid back £440m of the property tax relief last year but said it was also paying a final dividend as “shareholders should not bear the full short-term impact of the effect of Covid-19 on the business”.

Total dividends paid during the year were £232m compared with £247m a year before.