Sainsbury's overtakes Asda on demand for its premium lines

Sainsbury's dominant position as the best-performing Big Four supermarket was cemented yesterday when the company revealed it has surpassed Asda to become the country's second-biggest supermarket and is set to overtake Morrisons' profit levels for the first time in a decade.

Its chief executive, Justin King, has now set his sights on Tesco, and said he expected another record Christmas, with customers who traditionally shop at discount retailers trading up to Sainsbury's.

He also admitted that while sales have been soaring, the number of goods sold has fallen by 1 per cent, like-for-like, suggesting customers prefer Taste the Difference ranges over cheaper options.

Sales rose 4.3 per cent to £12.7bn and like-for-like sales increased 1.4 per cent, while underlying pre-tax profits jumped 7 per cent to £400m for the six months to end of September.

It puts Sainsbury's to within a whisker of Morrisons' underlying pre-tax profits, which fell to £401m in the same period, meaning Mr King's business is almost certain to overtake it next time.

The supermarket has also seen its market share rise to 16.8 per cent, according to Kantar, which means it is just behind Asda, although some measures by Nielsen suggest Sainsbury's has already overtaken its rival.

Mr King – who used to work for Asda – said that the market position was not important unless he was number one.

He said: "Internally we never talk about overtaking Asda. It has been a nice outcome from what we're trying to achieve, rather than our objective."

The last time Sainsbury's was the second-biggest supermarket was in 2003 shortly before Mr King joined. Some have suggested that he may step down after 10 years, but he insisted he is staying put. Sainsbury's success has come mainly through strong growth in its convenience stores and online businesses, which have risen by 20 per cent and 15 per cent.

The company has opened two convenience stores every week and the financial director John Rogers said the same rate of openings would continue for the foreseeable future.

Sainsbury's has been particularly successful in the convenience space and has the biggest portfolio of stores in the country, while Asda has none, with no plans to start building them, and Morrisons has just started entering the market with 100 open by the end of the year.

Mr King rejected suggestions that the space race to build new stores was over, although he did reveal that the company was writing off £92m on 20 stores it had planned to build on brownfield sites but will no longer need.

A highly secretive £13m was also written off, for what the company said was "mainly as a result of a provision for a commercial item, for which we intend to defend our position".

The company declined to explain further, but said it was not related to the costs for taking the Advertising Standards Agency and Tesco to court for a judicial review over the latter's price promise scheme.

Sainsbury's has complained to the ASA that Tesco was not comparing like-for-like products on own branded goods and, as such, the scheme was unfair. However, the ASA found in Tesco's favour and threw out an appeal.

Mr King said the cost of the current case should only run to a "few hundred thousand pounds" and insisted the judicial review was not a marketing exercise to raise Sainsbury's profile.

He added: "This is an important point of principle and I think the ASA will be happy when we win because it will clarify the rules."