Sainsbury's warns on 'sudden' downturn

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The Independent Online

The chief executive of Sainsbury's has warned of a "sudden" downturn in consumer spending and "quite dramatic" change in shopping habits this year, with no sign of an improvement on the horizon.

Justin King made his gloomy comments as the country's third-largest supermarket chain reported one of its weakest underlying sales performances for more than six years, which failed to meet expectations. But Mr King said the company had "outperformed" the grocery market as a whole and there was no change to City forecasts of pre-tax profits of £661m for its financial year just ended.

Nevertheless, the markets were spooked by the figures and Sainsbury's shares tumbled by 5 per cent, or 19p, to 335.3p. Shares in Morrisons also fell but more modestly. For the 10 weeks to 19 March, Sainsbury's like-for-like sales – excluding fuel and VAT and adjusted for store extensions – fell by between 0.5 per cent and 1 per cent. The downbeat update from Sainsbury's – which has been one of best-performing supermarkets in recent years – followed warnings from John Lewis and Primark about subdued footfall and spending this year.

Mr King pulled no punches in describing how quickly shoppers had reined in spending. He said: "The surprise is just how sudden that [change has come]. People have come out of Christmas and said: 'Right, now I am going to have to approach this different[ly].' People are waiting to get paid before deciding how much to spend." The impact of record petrol prices was seen in Sainsbury's total sales jumping by 6.8 per cent in the fourth quarter, but by only 3.5 per cent when fuel was excluded. Christopher Hogbin, an analyst at Bernstein, said the "marked slowdown" at Sainsbury's brought its performance "broadly in line" with those of rivals Tesco, Asda and Morrisons.

Sainsbury's said fuel inflation surged by 16 per cent over the 10 weeks, which was a key factor in families wasting less food and reducing their weekly spend. However, customers are visiting its convenience stores more often for a top-up shop, which helped Sainsbury's to increase its weekly transactions by one million to 21 million.

Mr King said shoppers putting one less item in their weekly shopping basket might not seem much in terms of the £151bn UK grocery sector, but he emphasised the speed of change. He said: "It is a very big step. That would historically take years but that has happened almost overnight [since] Christmas." Sainsbury's like-for-like sales, excluding fuel but including VAT, rose by 1 per cent, much less than the 3.6 per cent recorded in the previous quarter.

Mr King said the growth in consumer spending that typically occurred in February and March after a lull in January had not materialised.

"There is no good news on the horizon for consumers," he said. "The day of reckoning of taxes going up and potential job cuts in the public sector has got more imminent."

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