Sainsbury's: A Profitability Evaluation Amid The COVID-19 Pandemic

Grocery market in the UK

The WHO declared a pandemic a little over two years ago. Since then, SARS-CoV-2 has killed one out of every 1,300 persons still living in 2019. Two years have passed, and it is easy to forget how incredible the development of COVID-19 vaccines was: going from a genetic sequence to the approval of a vaccine in only 326 days broke all prior records (Mckinsey, 2022).

The world economy is still reeling from the effects of the COVID-19 pandemic's repercussions. The shutdowns of 2020, as well as the supply chain issues of 2021, have been followed by a new wave of disruptions that are now sweeping through enterprises across the world: increased input costs. Exact cost models and digital operations that are cutting-edge enable firms to adapt to growing expenses while also equipping them with the skills and capabilities they need to prosper when prices drop (Mckinsey, 2022).

As shoppers have become used to the "new normal" of food shopping, the time of panic-buying has subsided. There has been a shift in buying habits, with more people turning to the internet and home delivery services. The threshold for all grocery stores to "thrive" has been raised now that consumer expectations for food shopping have altered permanently. A large number of organisations worldwide are still in the Respond phase, while those that have been able to weather the effect may need to reconsider their strategy in order to Thrive (Deloitte, 2021). Next actions for COVID-19 survivors as they progress into the post-COVID-19 period include:

• Fast and effective judgments can only be made if you have a well-trained staff, an efficient organisation, and a thriving society to support.
• Refocus the organization's human resources on the most critical issues facing the company and its employees.
• As a result of COVID-19 replies, take advantage of future development chances.

SAINSBURY is now a household name in the United Kingdom, where it operates. It's a public limited company that's traded on the London Stock Exchange (LSE) and also the FTSE 100 stock index. By market share, it is the third-largest food retailer in the United Kingdom. To be fair, the company had been dominant for a long time until it began to wane in the 1990s (Sainsbury's, 2022). As of right now, the company's focus is on regaining market dominance in the United Kingdom and expanding its worldwide footprint. Sainsbury's profitability has been examined and evaluated in this essay in an effort to assess the effect of Covid 19.

After reporting a 39 per cent drop in earnings in 2020-21, British supermarket chain Sainsbury's (SBRY.L) predicted a significant recovery in fundamental profit, despite strong food retailers during the global epidemic being mitigated by additional costs as well as a consideration to forego business rates reprieve. Consumers returning to their usual routines when restrictions are eased and restaurants and bars are fully open in 2021-22 will have an influence on sales growth, but the expenses of the crisis will decrease (Reuters, 2021). After a brief pause, he said, "We are optimistic about the future and eagerly await the next summer of pleasure," but we also remain cautious about the economy. After Tesco (TSCO.L), Britain's second-largest food retailer, the year ending March 6 saw 356 million pounds in revenue (Reuters, 2022). This figure stood at 586 million pounds at the end of 2013.

Sainsbury's and COVID: A Profitability Evaluation

Although the corporation said it spent an additional $485 million pounds, retail sales increased by 7.8%, general retail sales by 8.3%, and online sales by more than double. It also reinstated about 410 million pounds in government rate relief for businesses. Announcing restructuring plans in November, Roberts said the company would lose 261 million pounds before taxes. The company also spent 617 million pounds on "extraordinary" costs (Reuters, 2021).

An estimated $500 million pounds ($623 million) in business losses have been attributed to the coronavirus epidemic by Sainsbury's, a British grocery operator. Food sales are expected to rise by roughly 450 million pounds, and the UK government has agreed to reduce business rates for Sainsbury's, the country's second-largest supermarket chain behind market leader Tesco (CNBC, 2020).

To put it another way: If there are no major changes, the business expects underlying pre-tax profits for fiscal year ending March 2021 to be about 586 million pounds. Lockdown limitations are expected to ease by the end of June, but Sainsbury's base scenario anticipates interruptions to continue until the middle of September. It also expects that worsening economic circumstances would have a negative influence on consumer demand, notably for general products and clothes, in the following months (CNBC, 2020).

Significant expenses connected with social distance and safety measures to safeguard customers and employees, as well as decreased sales of gasoline, general products, and apparel, as well as lower profitability in the financial services industry, the company said in a statement. As a result, the board thinks it's best to hold off on making any dividend payments until later in the year when there will be more information about how COVID-19 could affect the business.

Sainsbury's made a loss of £261 million last year, even though it sold a lot of groceries during the pandemic. The corporation invested a lot of money on coronavirus protection for its employees and consumers. Employees who worked throughout the pandemic received special incentive bonuses, extra staff were hired to replace those who were quarantined, increased safety procedures were implemented in stores, and compensation was provided to vulnerable employees who were forced to stay at home as a result of the epidemic, according to the second-largest supermarket in the United Kingdom. More than 400 Argos shops are scheduled to be shut down and the group's banking operations and the value of its super markets have been written down by more than £200 million in restructuring charges of £423 million (Butler, 2021).

Compared to the previous year, grocery sales rose by 7.3%, with internet sales more than double that amount. in that time frame retail sales, which includes Argos, rose by around 9 percent. Sainsbury's said that overall sales stayed almost unchanged at £29 billion, owing to drivers using less gasoline in their automobiles during the lockdowns and clothes sales falling about 9 per cent (Butler, 2021).

In the previous year, the corporation had made a £255 million pre-tax profit, which resulted in a significant yearly deficit. Sainsbury's said it was on course to surpass its profit forecast for 2020 in the year ahead. The firm said that although it had a solid start to the year, it was being "prudent" about the months ahead when it anticipated consumer behaviour to return to normal. "The epidemic has had a significant impact on this year's financial outcomes." "Food and Argos sales have increased dramatically as a result of the epidemic, but the expenses of keeping workers and customers safe have been enormous," said Simon Roberts, the company's chief executive. His company was "getting thrilled about a summer of celebrations," but he added that it was "apprehensive" about the economy's future (Butler, 2021).

Sainsbury's has expanded its outdoor and barbeque product offerings by 400 per cent, anticipating that families would gather outdoors this summer. Roberts predicted that despite the reopening of bars, alcohol sales at supermarkets would remain robust, as more families chose to party at home this holiday season. Roberts acknowledged that the return of customers to bars and restaurants will have a negative impact on sales growth. As a result, he claims, more people will be able to cook their own meals and this will have a long-term positive effect on the retail sector.

He claimed that Sainsbury's will open 18 new small neighbourhood stores, each with an Argos pickup station and seven additional convenience stores, in response to the shift in customer behaviour. Instead of concentrating on places where they were formerly popular, such as metropolitan centres, the corporation plans to close 25 convenience stores over the next year. Sales at convenience shops increased by 13 per cent in less urban areas during the last year, compared to a 9 per cent overall decline in sales at convenience stores (Butler, 2021).

The chances of individuals returning to the workplace five days a week are quite unlikely, I believe, and I believe this to be crystal evident." We expect a hybrid approach in which the convenience estate is well-positioned to reflect the transformation in the way people are living, working, and shopping," he said. As a result of the closure of Sainsbury's headquarters and Roberts' proposal to allow head office staff to work from retail locations and participate in meetings through video conferencing, the company has begun a permanent move to "hybrid working."

This is a five-fold increase in the number of supermarkets and convenience stores that the firm expects to close in the next three years compared to what was projected prior to the epidemic. According to the corporation, sales of online groceries, which had risen to 17% of total sales from 8% before the pandemic, would likely decrease somewhat, but not return to their earlier levels (Butler, 2021).

In the future, he predicted that internet delivery will become even more profitable. Deliveroo, Uber Eats, and Sainsbury's own Chop Chop service have all seen a surge in sales over the last four years, with sales now totaling £50 million, compared to a mere £4 million four years ago, according to Sainsbury's (Butler, 2021).

Sainsbury's and other supermarkets agreed to give up millions of pounds in business rates relief in response to public outrage over the move. As a Sainsbury's customer, you may be eligible for a substantial property tax rebate. It also issued a last dividend, arguing that "shareholders should not face the whole short-term financial hardship of the impact of Covid-19 on business." It paid out a total of £232 million in dividends for the year, a reduction from the previous year's total of £247 million (Butler, 2021).

In the Christmas quarter, Sainsbury's (SBRY.L) upped its full-year profit forecast by at least 9%, despite falling short of the company's record-breaking holiday performance in 2013. Increased food consumption in the house has been a factor in Sainsbury's decision to alter its financial forecast, which it said was required to balance investment spending and rising operating costs over the last year. With bad debt levels lower than expected and loan volumes continuing to recover, the Argos general retail company continued to benefit from greater margin driven by cost reductions. Sainsbury's financial services, on the other hand, exceeded analysts' profit projection predictions. Food and beverage sales soared in the United Kingdom during a lockdown, which made it impossible to compare the situation to Christmas 2020. (Davey, 2022).

In the third quarter, supermarket sales were down 1.1 percent from the same period last year, but they were up 6.6 percent when compared to the same period in 2013. The supermarket giant Sainsbury's claims that despite a strong year in general goods sales, supply constraints in key product categories and a concentration on profitable sales were to blame for a 16% year-on-year fall in sales (Davey, 2022). As a result, COVID has had a significant influence on the company's profitability; yet, certain new possibilities that have arisen as a result of COVID have been positive.

Butler, S., 2021. Sainsbury’s slumps to £261m loss on back of Covid costs. [online] the Guardian. Available at: <https://www.theguardian.com/business/2021/apr/28/sainsburys-slumps-to-261m-loss-on-back-of-covid-costs> [Accessed 18 March 2022].

CNBC, 2020. EUROPE NEWS Britain’s Sainsbury’s warns coronavirus profit impact could be $623 million. [online] Available at: <https://www.cnbc.com/2020/04/30/uk-sainsburys-warns-coronavirus-profit-impact-could-be-500-million.html> [Accessed 18 March 2022].

Davey, J., 2022. Sainsbury's raises profit outlook on strong Christmas sales. [online] Available at: <https://www.reuters.com/business/sainsburys-raises-profit-outlook-despite-christmas-sales-fall-2022-01-12/#:~:text=Register%20now%20for%20FREE%20unlimited%20access%20to%20Reuters.com&text=LONDON%2C%20Jan%2012%20(Reuters),its%20stellar%202020%20festive%20performance.> [Accessed 18 March 2022].

Deloitte, 2021. Understanding COVID-19’s impact on grocery & food retailers| Deloitte Global. [online] Deloitte. Available at: <https://www2.deloitte.com/global/en/pages/about-deloitte/articles/covid-19/understanding-covid-19-s-impact-on-grocery---food-retailers.html> [Accessed 18 March 2022].

mckinsey, 2022. COVID-19: Implications for business. [online] Available at: <https://www.mckinsey.com/business-functions/risk-and-resilience/our-insights/covid-19-implications-for-business> [Accessed 18 March 2022].

Reuters, 2021. Britain's Sainsbury's expects profit bounce after 39% fall. [online] Available at: <https://www.reuters.com/world/uk/sainsburys-profit-down-39-covid-costs-outweigh-sales-rise-2021-04-28/> [Accessed 18 March 2022].

Reuters, 2021. J Sainsbury plc. [online] Available at: <https://www.reuters.com/companies/SBRY.L> [Accessed 18 March 2022].

Reuters, 2022. Tesco PLC. [online] Available at: <https://www.reuters.com/companies/TSCO.L> [Accessed 18 March 2022].

Sainsburys, 2022. sainsburys. [online] About.sainsburys.co.uk. Available at: <https://about.sainsburys.co.uk/investors/share-price-information/chart> [Accessed 18 March 2022].