3 Great Reasons Why J Sainsbury plc Is Set To Take Off

Royston Wild looks at the major share price drivers for J Sainsbury plc (LON: SBRY).

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Today I am looking at why I believe J Sainsbury (LSE: SBRY) (NASDAQOTH: JSAIY.US) is a standout pick in the British grocery industry.

Market share continues to march higher

Sainsbury continues to punch reliable sales growth despite the ongoing pinch on customers’ wallets, and announced in June’s trading statement that market share rose by 0.2 basis points in April-June, to 16.8%. Like-for-like sales advanced 0.8% higher during the period, excluding petrol transactions.

Sainsbury attributes its rising market share to concentrating on general merchandise categories which complement its food section, and notes that non-food sales are currently growing at twice the rate of food. In particular, kitchen electricals are currently rising by an impressive 34% on an annual basis, while cookware is marching around 23% higher.

Brand development paying dividends

One of Sainsbury’s major success stories has been the investment into nurturing the quality and reputation of its own-brand products. The company’s more expensive Taste The Difference product portfolio, for example, is seeing sales rise by around 10% each year and which now amount to more than £1bn.

While the likes of middle-ground rivals Tesco and Wm. Morrison have seen their market share erode at the expense of premium grocers such as Waitrose and Marks & Spencer, Sainsbury’s drive to improve product quality has left it better positioned to defend sales volumes. At the same time its commitment to maintaining price competitiveness has also reduced the impact of budget chains such as Lidl.

Still much room for large store growth

Unlike many of its major rivals, particularly Tesco, Sainsbury still has much scope in which to continue opening major new stores. The supermarket has said that it plans to continue opening around 1m square feet of new retail space per year, and broker Investec reckons that around 700,000 square feet of this will be dedicated to its large stores.

Also, Sainsbury’s steady drive to rapidly expand its portfolio of convenience stores should also continue to turbocharge earnings — the company reported in June’s statement sales from these shops exploded 20% from the same 2012 period. The chain opened 19 new mini stores during April-June and plans to open an average of two per week for the rest of the current year.

On top of this, Sainsbury is also wired up to realise strong growth from its online business — sales here increased 16% in the first quarter.

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> Royston does not own shares in any of the companies mentioned in this article. The Motley Fool owns shares in Tesco and has recommended shares in Morrisons.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

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