Sainsbury puts heat on suppliers: Supermarket giant may cut number of manufacturers for own-label products

J SAINSBURY is asking its suppliers to find cost savings in production, packaging and distribution to help finance the deep price cuts it announced last week on 300 basic own-label lines.

According to one large supplier, buyers from the supermarket group have indicated that they expect suppliers to take some of the pain. 'They are talking about ways of sharing the grief.' However, the supplier added that Sainsbury was being constructive in looking for cost-saving opportunities. 'They haven't been beating us up,' he said. 'At least, no more than normal.'

There is also speculation that Sainsbury may try to re- align its supplier base, reducing the number of manufacturers it uses for any one product category. However, there is no evidence of such culling so far.

City analysts last week were coming to terms with the extent of the price cuts. According to Tony MacNeary at NatWest Securities, the stock market has not fully appreciated how aggressive Sainsbury has been.

The cuts - ranging from 1.5 per cent to more than 30 per cent - cover 10 per cent of Sainsbury's sales. Sliced white bread is down 25 per cent to 29p, a 2-litre container of orange juice down 25 per cent to pounds 1.49, apples down 28 per cent to 25p per pound, cod fish-fingers down 32 per cent to 85p.

Mr MacNeary predicted that other food retailers would be forced to retaliate. 'It's inevitable that Safeway will do something. Their prices are probably a bit out of line with Sainsbury's now. I would have thought Kwik Save would do something too.'

Unlike Tesco, Asda and Gateway, which have all announced heavy price promotions this year, the Argyll- owned Safeway has not so far gone beyond its regular promotions. Kwik Save may be stung into action by Sainsbury's unflattering price comparisons last week.

Most of Britain's large food groups manufacture Sainsbury- label products, including Northern Foods, Unigate, Dairy Crest, Hillsdown and Hazlewood Foods. Their shares were badly hit last week, as were supermarket shares.

The food retailing sector has been the worst-performing this year, as fears grow that the hundreds of planned new superstores will never make a decent return.

Incursions by foreign discounters such as Aldi, Ed and Netto have added to investor jitters, as has the court victory last month of CostCo, the US warehouse club, which is planning to open a giant store in Thurrock, Essex.

Mr MacNeary has downgraded his profits forecast for Sainsbury in the current year from pounds 824m to pounds 800m and next year's from pounds 915m to pounds 850m.

He said the City had exacerbated the problem by not allowing weak supermarket groups to go to the wall over the last two years. 'The City rescued Asda. The City rescued Gateway. That (the resulting surplus capacity) is what has caused the problems.'

One senior supermarket group director said the price war fears were overdone. 'It's not a price war. But it is a more serious skirmish than we've seen for a little while.' He said there were still excellent opportunities for new superstores, though he would be looking more cautiously at locations where he was opening head-to- head with a main competitor.

(Photograph omitted)

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