Sainsbury’s sitting pretty as chief executive Mike Coupe reveals benefit of cutting prices

Shares in the supermarket giant surged 14 per cent to 261p, as Mr Coupe said he expected the company to be 'moderately' ahead of the £548m full-year profits pencilled in by analysts

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The Independent Online

Sainsbury’s electrified a beleaguered supermarket sector as Mike Coupe, its chief executive, said the “Big Four” grocer was on course to beat the City’s profit hopes this year.

All the UK’s major supermarkets have been battling against falling food prices and the march of discounters Aldi and Lidl, and Tesco is the subject of a Serious Fraud Office investigation into its accounts, while Morrisons sacked its boss earlier this year.

But shares in Sainsbury’s surged 14 per cent to 261p, as Mr Coupe said he expected the company to be “moderately” ahead of the £548m full-year profits pencilled in by analysts. He put the upgrade down to price-cutting as well as a move towards simpler pricing which boosted sales and cut waste. Tesco and Morrisons surged 7 per cent to 183.2p and 6 per cent to 166.1p respectively.

The cheer caught the City off-guard, as Sainsbury’s has been one of the most bet-against stocks in the Square Mile. Shore Capital’s Clive Black said: “We would not expect Sainsbury’s to raise guidance if it was not significantly more confident about achieving such an out-turn.”

Mr Coupe said Sainsbury’s prices had “never been sharper” as the company also closes the gap on Aldi and Lidl. “The ‘price gap’ versus the discounters has come down by we reckon between 5 per cent and 10 per cent over the last year, so that’s probably the biggest difference,” he said. 

Mr Coupe added that the grocer’s 137,000 staff were on average £1,000 better off over the past two years, as he said Sainsbury’s would be ahead of the Living Wage set by the Living Wage Foundation – currently £7.85 an hour – as well as the Government’s new national living wage of £7.20 an hour for over-25s which kicks in next April. 

He said: “We don’t want to be a minimum-wage employer. Against both the national living wage – what in effect will become the minimum wage – and the [Living Wage Foundation’s] Living Wage, we would be ahead of both of those over a five-year time horizon.”

Alongside £200m in price cuts to tempt back customers, Sainsbury’s is on track to save £500m over three years, Mr Coupe added. The company also said its Tu clothing website had “significantly exceeded” expectations while online grocery sales were up 15 per cent.

The grocer’s sales decline at stores open more than a year was also shallower than the City feared – down 1.1 per cent in the quarter to 26 September. Mr Coupe added that the improvement in the company’s performance was “a game of inches”.  

Bruno Monteyne, an analyst at Bernstein, said: “The results represent a change of tone for Sainsbury’s. It has tried to take a cautious message up to now, that it will go ‘toe to toe’ with whatever price investment anyone else makes. That it is talking up guidance is now showing they are more confident in their strategic position.”

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