Sainsbury’s and Iceland left deflated by supermarket price wars

Deflation and ongoing price wars between Aldi and Lidl saw like-for-like sales falling for two of Britain's biggest high street grocers

Two of Britain’s biggest high street grocers have revealed the ravages of food deflation and ongoing price wars with the discounters Aldi and Lidl.

The supermarket giant Sainsbury’s saw like-for-like sales – from stores open for at least a year – fall 2.1 per cent in the past three months, the sixth quarterly fall in a row, but said it had seen some “encouraging early trends” as its new chief executive, Mike Coupe, approaches his first anniversary of taking over from Justin King.

The budget frozen-food chain Iceland reported a 4.4 per cent fall in sales to £2.7bn in the year to the end of March and a 26 per cent drop in core earnings to £150m. But Malcolm Walker, the chairman and chief executive of the privately owned chain, said he had seen “more encouraging underlying sales and profit” towards the end of the year.

The fall in Sainsbury’s sales was not quite as bad as some analysts had feared and its shares, which have lost 23 per cent over the past year, reacted well, rising 4.5 per cent to 260.3p.

Mr Coupe said he could not say when sales might start growing again. “We won’t be drawn on that point because the big factor is deflation and until we see a return to inflation we won’t call a turn. We see deflation continuing all this year and probably into next year,” he said.

He added that although consumers were better off with some £16 a week more disposable income than a year ago, they were spending that money on “cars, TVs and holidays” and also on eating out more, which he admitted was not good news for supermarkets.

He said last weekend’s burst of warm weather had been good for sales, particularly of BBQ smoked chilli pulled pork and sweet chilli chicken thighs.

At Iceland, Mr Walker admitted that despite cutting the prices of 800 core frozen foods from £1 to 89p, the group had recognised that price alone could not differentiate the chain from the discounters. He has shifted the approach to emphasising quality and the advantages of frozen foods, including the recent massive advertising campaigns around bake at home breads and Italian ices.