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CEO Coupe says trading is challenging

Sainsbury’s signals start of new price war as sales dip

sainsburysPrice cutting by the supermarkets has impacted on trading figures at Sainsbury’s which today announced a slight fall in revenue over the Christmas period.

Sales on a like-for-like basis excluding fuel fell by 1.7% over the three months to 3 January and the 3.9% when lower petrol prices are included.

Mike Coupe, chief executive, said customers were benefiting from lower prices and he announced that 700 products would be included this week as part of a £150 million round of discounts announced in November, taking the total to around 1,000.

“Food price deflation and falling fuel prices have enabled our customers to treat themselves over the festive period,” he said.

Rival supermarket chains are expected to follow suit in what is likely to be the beginning of a new price war. Tesco is expected to unveil a range of cuts to prices when it reports tomorrow, alongside a swathe of job cuts and office closures.

In its trading update, Sainsbury’s said it experienced a record-breaking week before Christmas with more than 29.5 million customer transactions.  

Coupe, who succeeded Justin King last year, said the trend of more frequent and local shopping continues and with growth of more than 16% in Sainsburys’  convenience business in the quarter. The biggest ever day for sales in convenience stores was on Christmas Eve when the stores took £8m.

The groceries online business had its biggest Christmas. In the three days to 23 December, it delivered more than 110,000 orders.

Clothing and general merchandise businesses traded strongly over the quarter, with the clothing business up nearly 10% year-on-year. The company sold more than twice the number of Christmas jumpers compared to last year and the ‘snowman’ jumper, designed by an employee, was the best-seller by volume.

Sainsburys opened 25 convenience stores and refurbished a further seven in the quarter. It also opened four supermarkets, one extension and one replacement store, and refurbished seven supermarkets. 

Coupe said the outlook for the remainder of the financial year will remain challenging, with food price deflation likely to continue.

“Our performance in the third quarter showed an improving trend quarter-on-quarter. However, given the uncertainty in the trading environment, food price deflation and the price reductions we announced this week, we currently expect our fourth quarter like-for-like to be similar to that of our first half. “

Phil Dorrell, director of the retail consultancy Retail Remedy, said: “These numbers were marginally better than expected, but still highlight the challenges facing Sainsbury’s and the rest of the big four.

 “Sainsbury’s is under attack from all angles — from the discounters who are going from strength to strength, food price deflation, a wounded Tesco and a Morrisons that may finally be starting to halt its own sales freefall.

“Like-for-like sales slump aside, there is a lot Sainsbury’s does right. It has smaller stores than its competitors, a strong convenience business, a solid online proposition and some of the best own-label stats in the business. Taste the Difference is really starting to make a difference.

“If it concentrates on these qualities and sticks to the basics in the medium-term, it may well emerge in better shape than many expect.

“Sainsbury’s has already made some concessions on price, with over 1000 basic lines being trimmed this week alone, so it clearly recognises the battle is currently in that area.

“If Sainsbury’s attempts to duke it out with the big boys, it could take one hell of a beating. Even though the Netto experiment is interesting, it’s certainly no saviour yet.

“Focusing overly on price could damage the reputation for quality Sainsbury’s has built up over the years. Our concern is the erosion of margin that three years of £150m price investment will result in for Sainsbury’s.

“It can’t afford to cut corners on quality, it’s not in a position to make many workforce savings, and it’s no Asda, so either the suppliers have got to play ball or margins are going to be squeezed.

“Where price falls follow revenue falls, expect the inevitable profit fall, too.”

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