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Sainsbury’s sees big fall in supplier payments following move away from promotions

Sainsbury’s income from supplier payments plummeted 42% last year after the chain started moving away from multi-buy promotions and towards lower overall pricing.

Analysis of the group’s annual report for 52 weeks to 12 March 2016 showed that so-called “supplier arrangements”, which includes money paid by suppliers to have their products promoted in store, fell to £371m from £639m the year before. In notes accompanying the accounts, Sainsbury’s said: “The year-on-year reduction has been driven by the
conscious decision to move away from supplier arrangements and towards a reduction in the base cost of goods.”

Sainsbury’s made the move away from multi-buy promotions towards lower regular prices to help combat waste and offer simpler and lower pricing for shoppers, a strategy that has proved successful for the discounters.

However, Sainsbury’s new strategy was blamed for its recent weak performance seen in market data published by Kantar Worldpanel. Sainsbury’s sales declined 1.2% in the 12 weeks ending 22 May – which led to a drop in its market share to 16.2%. This was its worst performance in almost a year and raised concerns that a trading update this week could disappoint.

Edward Garner, director at Kantar Worldpanel, said Sainsbury’s fall that had been driven by a decline in pack sales, which was the short-term result of shifting its promotional emphasis from multi-pack deals to straightforward price cuts. Sainsbury’s has also recently ditched its brand-match guarantee as part of the change in its promotion strategy.

Sainsbury’s will release its first quarter trading update on Wednesday with Deutsche Bank forecasting that the chain will report a 1.4% slip in like-for-like sales, compared to a rise of 0.1% in the previous quarter (its first quarterly like-for-like sales growth for more than two years). However, analysts at Shore Capital are expecting largely flat like-for-like sales, ranging from a fall of 0.5% to a gain of 0.5%, with strong non-food sales offsetting weaker food sales.

Meanwhile, the annual report (which was published at the end of last week) showed that Sainsbury’s Chief Executive Mike Coupe received an 86% rise in his annual pay package to £2.8m last year despite a steep fall in underlying profits. His pay was boosted by a £767,000 bonus, his first as head of the company after he missed out in 2015. On top of his basic salary of £916,000, he also received a share bonus worth £806,000, along with pension and other benefits. However, he did not receive a pay-out under the group’s long-term incentive plan as conditions in the sector remained tough.

The company’s remuneration committee said in the annual report: “The committee acknowledges the absolute year-on-year decline in profit and [underlying] sales but is comfortable that the targets were robustly set, particularly when the broader context of the retail market and Sainsbury’s outperformance of our main supermarket peers is considered.”

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