Supermarket new broom sweeps in with King-sized price cuts

Retailers: On Britain's mean high streets, one famous name is slashing food bills - while at another, clothing sales are rained off
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The Independent Online

Justin King, the new chief executive of J Sainsbury, has launched a huge price-cutting initiative across more than 2,000 lines in the supermarket's range.

The move is an attempt to halt the slide in sales at the group, which saw its market share drop to 15.5 per cent in the 12 weeks to 25 April, putting it in third place in the market after Tesco and Asda.

The price cuts, which were started last weekend, are understood to cover more than 1,000 edible grocery lines and around 1,200 branded goods rather than Sainsbury's own-label products. Only around 200 of the cuts are short-term offers.

Prices have been brought down by about 2 per cent on average, it is estimated.

The breadth of the price reductions has astonished rivals and followers of Sainsbury's alike. By comparison, when Wm Morrison took over Safeway earlier this year, it launched a price war - but cut prices on only 800 lines.

However, the cuts are not as deep as at Morrisons, which slashed prices by more than 5 per cent on average.

Sainsbury's has refused to confirm the price cuts. But they were noted in two surveys conducted last week by analysts at City investment banks. JP Morgan surveyed over 250 lines at the supermarket, while Goldman Sachs studied 155.

"Sainsbury's cut prices most heavily in May," said Nicholas Jones at Goldman. "However, despite this, Sainsbury's remains 5.8 per cent more expensive than Asda, according to our pricing study."

Analysts at JP Morgan calculated that the price cuts could hit Sainsbury's profits hard. They argue the group would need a 14 per cent increase in sales to make up for the loss of profits and said that it was likely Mr King would have to reveal a profits warning when he announced Sainsbury's interim results on 19 May.

Sainsbury's declined to comment on what would be in the financial statement.

The new Sainsbury's boss has his work cut out to turn the company around. He previously ran Marks & Spencer's food division and, before that, was a leading light at Asda under Allan Leighton. Mr King's predecessor at Sainsbury's, Sir Peter Davis, has stepped up temporarily to chairman and intends to hand over this role. However, he has not been able to find someone acceptable to the City to take it on. A proposal to appoint Sir Ian Prosser, the former Six Continents chairman, was rejected by shareholders.

The combined Morrisons and Safeway has a 14.4 per cent market share. City analysts predict it will not be long before Sainsbury's, which used to be the market leader, falls into fourth place in the ultra-competitive UK grocery sector.