Price war rules for Sainsbury’s

SAINSBURY’S expects to cut more prices and sees no end to the supermarket price war as the cost of competing sent annual profi ts 14 per cent lower.

The UK’s second biggest supermarket said customers were buying more and shopping more frequently, but this was not enough to offset the impact of falling prices as its earnings fell for the second year running.

Chief executive Mike Coupe said consumers were choosing to spend higher disposable incomes on holidays and better cars rather than groceries, but insisted that its acquisition of Argos owner Home Retail for £ 1.4billion would help it emerge a winner.

Sainsbury’s beat City forecasts with underlying pre- tax profit of £ 587million, down from £ 681million last year, on 1.1 per cent lower sales of £ 25.8billion. It overtook Matalan to become the UK’s sixth biggest clothing retailer after growing sales by 8.5 per cent to just under £ 1billion. Online sales were up nearly 9 per cent and takings at its convenience stores increased by more than 9 per cent to over £ 2.3billion.

Meanwhile, Kantar Worldpanel data showed Sainsbury’s sales declining 0.4 per cent in the 12 weeks to 24 April – its first reverse since last July–although it maintained its 16.5 per cent market share. German rivals Lidl and Aldi grew sales by 15.4 per cent and 12.5 per cent for a combined 10.4 per cent share.

Coupe, pictured, said: “Customers have never had more choice. We are making good progress against the strategy we outlined in November 2014 and continue to outperform our main super - market peers in a competitive, deflationary environment.

“The market is competitive, and it will remain so for the foresee able future. Ongoing pricing pressures and food price deflation have impacted our sales and operating margins.

“We would expect to continue to sharpen our overall prices over the next period.”

Shore Capital analyst Clive Black said Sainsbury’s was “doing the right things” by lowering prices and simplifying its offer to customers.

But he added: “We harbour concerns that Sainsbury’s may be complicating its business through the Argos acquisition just as its largest competitor Tesco is ‘ getting its act together’.”

Sainsbury’s shares fell 17 ½ p to 268 ¼ p.