Sainsbury's to put IT savings into price cuts

J Sainsbury yesterday freed up £25m to invest in slashing prices and improving its appeal to shoppers when it unveiled plans to buy the company set up to help overhaul its antiquated IT systems.

The supermarket group, which is still losing market share despite spending millions of pounds on transforming every aspect of its business, is acquiring Swan Infrastructure, the company it set up to finance the revamp of its IT infrastructure, in a deal worth some £553m.

It is still outsourcing the project to Accenture but said it would now have a direct commercial relationship with the consultancy. Sainsbury's said the move would simplify the financing structure, saving it £25m in its next financial year.

Signalling the increasing likelihood of a supermarket price war breaking out, Sir Peter Davis, Sainsbury's chief executive, said the money saved would help its move "towards trading our business harder from summer 2004". He added: "The net reduction in costs will provide [us] with additional resources to develop our customer proposition, by investing in quality and innovation and improving further our competitive offer."

Sainsbury's will be the only major supermarket retailers not to rely on a low pricing strategy to woo shoppers once Wm Morrison's completes its acquisition of Safeway.

The group is paying £6m in cash for Swan's shares, spending a further £234m in cash to pay back bank debt and exchanging £313m worth of bonds.

Analysts were surprised by the timing of the move, which comes only weeks after Sainsbury's announced a three-year extension for its existing contract. Rhys Williams, at Seymour Pierce, said: "This announcement further highlights how complicated a deal it was and by how much Sainsbury's had overspent on the original contract."