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Profits and sales to take hit

More price cuts as supermarkets battle for customers

Mike Coupe SainsburysTwo of Britain’s new supermarket bosses are expected to open another front in the price war this week as they reveal a squeeze on sales and profits.

Morrisons, under David Potts, will reveal a decline in like-for-like sales while Sainsbury’s new chief executive Mike Coupe (pictured) is likely to unveil a big hit on trading profit.

They will join Tesco’s new chief Dave Lewis in warning of a tough year ahead as all the big chains battle for market share against German budget chains Aldi and Lidl.

Aldi last month announced it has overtaken Waitrose to become Britain’s sixth biggest supermarket chain by market share.

 

Aldi now has 5.3% of the market compared with John Lewis-owned Waitrose’s 5.1% and is expected to open more stores in Britain this year than Morrisons, Sainsbury and Tesco combined.

Lidl’s market share has risen to 3.7% so that the combined market share of the two German chains is 9%, against 5.4% three years ago.

Tesco has recently clawed back some ground. Sales in the first 12-week period of the year rose 0.3%, giving it a market share of 28.4%.

But the 72.8% share taken by the biggest four retailers, including Asda, is now at the lowest level in a decade.

 

Nicla Di Palma, equity analyst at Brewin Dolphin says investors’ attention this week will be focused on Sainsbury’s profitability in the year and on the outlook.

“As far as profitability is concerned, we expect a significant decline in trading profit (pre-exceptionals).

“As with Tesco, management is likely to announce that 2015/16 will not bring any improvement in profitability, although we do not expect a detailed outlook.

Sainsbury’s recently relaunched Netto in a bid to claw back some of the discount business and protect its own position. Analysts say it is too early to assess its impact.

 

Few in the City are expecting much change at Morrisons as new chief executive David Potts needs time to get his feet under the table.

However, he is thought to be considering a new round of price cuts. Di Palma said: “Whilst we still expect a decline in like-for-like sales, the trajectory should show an improvement compared to an extremely poor 2014/15. Llike-for-like sales were down 5.9% overall in 2014/15.

“In our view, it is way too early for Mr Potts to have formulated any kind of strategy to revive Morrison’s fortunes and we do not expect any significant announcement in that sense at least until the interim results on 2 August.”

 

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