Sainsbury's to open its own hotels and flats: Supermarket intends to add both to some stores in bid to turn around sales slump

  • Supermarket giant is struggling to cope with emergence of budget chains
  • Firm believes it can raise millions by building flats above supermarkets
  • It comes after the company posted a £72million loss in the year to March 

Sainsbury's is to add hotels and flats to its supermarkets in a bid to turn around a sales slump.

The supermarket giant is struggling to cope with the emergence of budget chains Aldi and Lidl and yesterday posted a £72million loss in the year to March – its first full-year loss for ten years.

The results were affected by a number of one-off costs, including the write-down of the value of its store empire and undeveloped land by more than £700million.

Sainsbury's is to add hotels and flats to its supermarkets in a bid to turn around a sales slump (file picture)

Sainsbury's is to add hotels and flats to its supermarkets in a bid to turn around a sales slump (file picture)

Excluding the one-off costs, sales profits were down by almost 15 per cent to £681million. Its share price fell by 3 per cent in early trading.

Sainsbury’s now intends to add flats and hotels to some stores, while new supermarkets will be built alongside homes in partnership with house builders. 

The company believes it can raise £90million by building 440 flats above a supermarket in Fulham and £60million by building 750 flats near Battersea Power Station.

It has a partnership with Land Securities in Wandsworth, London, which resulted in a store extension alongside a new Premier Inn. A store in Selly Oak, Birmingham, is being extended as part of a development that will include 400 student flats.

These schemes could serve as a template for other sites owned by the supermarket around the country.

Sainsbury’s has already responded to changing shopping habits by abandoning plans to build 40 big box supermarkets.

It will also be getting rid of food aisles in some bigger outlets in favour of selling its own brand home ware products and fashions. Some space will be leased to other retailers like Argos and Jessops.

There is enormous pressure on the chief executive, Mike Coupe (pictured), who took over last year from Justin King, just as the domination of the big four was coming to an end

There is enormous pressure on the chief executive, Mike Coupe (pictured), who took over last year from Justin King, just as the domination of the big four was coming to an end

The radical measures come as the once dominant big four – Tesco, Sainsbury’s, Asda and Morrisons - are losing billions of pounds a year in sales as customers switch to the cheaper budget chains, Aldi and Lidl.

This competition has triggered a price war on shopping basket essentials which is savaging profit margins.

Sainsbury’s is being squeezed by budget chains on one side and Waitrose and Marks & Spencer on the other. At the same time, it will come under pressure from new management at Tesco, which is focused on cutting prices and improving service. 

But retail expert Julie Palmer, of Begbies Traynor, said Sainsbury’s faced a struggle to recapture its former glory.

‘While the retailer’s move to make better use of its larger sites – from letting space to other retailers to incorporating hotels and flats into their design – is to be applauded, it is clearly too late to save the company from significant property write-downs,’ she said.

‘Its worrying financials are the least of Sainsbury’s woes, as dark clouds remain on the horizon. Improved trading at Tesco is likely to adversely impact Sainsbury’s more than the other “big four” supermarkets given their greater overlap of store locations.

Mike Coupe is pinning future growth on the Sainsbury’s Local convenience stores with plans to open new outlets at a rate of one to two a week over the next 12 months

Mike Coupe is pinning future growth on the Sainsbury’s Local convenience stores with plans to open new outlets at a rate of one to two a week over the next 12 months

‘Meanwhile Sainsbury’s hasn’t been investing anywhere near as much as Asda and Morrisons when it comes to price cuts, relying rightly or wrongly on its quality credentials instead.’

Himanshu Pal, the director of retail Insights at analysts Kantar, said: ‘Sainsbury’s continues to struggle with the structural issues that confront all traditional big box players.

‘It has started some good initiatives such as sub-letting excess in-store space to non-food retailers, rationalising in-store assortment, increased focus on general merchandise and clothing, and repurposing its real-estate to develop residential apartments with Sainsbury’s as the anchor occupant.’

There is enormous pressure on the chief executive, Mike Coupe, who took over last year from Justin King, just as the domination of the big four was coming to an end.

He is pinning future growth on the Sainsbury’s Local convenience stores with plans to open new outlets at a rate of one to two a week over the next 12 months.

The supermarket has also signed a partnership with the Danish budget chain Netto to open stores here to rival Aldi and Lidl.

Mr Coupe said: ‘The UK marketplace is changing faster than at any time in the past 30 years which has impacted our profits, like-for-like sales and market share.

‘However, we are making good progress with our strategy, and our investment in price and quality is showing encouraging early signs of volume and transaction growth.’