Sainsbury's lost further ground in the supermarket wars yesterday when it announced lower than expected profits and poorer sales growth than rivals such as Tesco and Safeway.
The company blamed higher advertising costs, the expense of a store refurbishment programme and a pounds 7.5m loss in the last six-month period at the Texas Homecare chain acquired in January.
City analysts were disappointed with the 1.5 per cent increase in taxable profits to pounds 451m for the period to September. The group's like for like sales growth of just 2.3 per cent is well below arch rivals Tesco, Safeway and Asda.
According to figures compiled by the Central Statistical Office, Sainsbury's share of the UK grocery market is now down from 11.7 per cent a year ago to 11.6 per cent, compared to Tesco's rise from 10.8 to 12.8 per cent, which takes account of the 1994 purchase of William Low Supermarkets.
Sainsbury shares yesterday fell 21p to 403p and analysts downgraded their profits forecasts for the full year from pounds 855m to pounds 810m. One analyst said: "They've got a lot to do and its going to get worse before it gets better. They are probably going to have to do something pretty innovative to distinguish themselves from rivals in a fierce marketplace."
David Sainsbury, chairman, said the company would increase its advertising and marketing budget by pounds 10m, with the focus on customer service. He admitted the company had made marketing errors. Last week the company appointed a new marketing director, Kevin McCarten, who will join from Kingfisher, replacing Ivor Hunt, who is to retire.
Mr Sainsbury declined to comment on further management changes though he confirmed that the deputy chairman, Tom Vyner, will retire in January 1997 when he reaches 60. The company is under pressure to bring in more fresh talent from outside.
In spite of the success of Tesco's Club Card, which now has more than 7 million members, Sainsbury's confirmed that it will not extend its loyalty card nationally, though it is now in 200 of its 350 stores. "We have asked our customers and they do not want loyalty cards," Mr Vyner said. "They are interested in better quality, lower prices and higher standards of service."
The company opened two new supermarkets in the period and will open a further eight in the second half. Six sites in Northern Ireland have been agreed, with planning permission for the first three.
More of the smaller high street stores will be converted into the Sainsbury Central format, though the company says it will not develop a chain of mini supermarkets along the lines of Tesco Metro. It claims the format is uneconomic.
Sainsbury plans to grow sales by extending existing stores. Mr Sainsbury said sales space should increase by 5 per cent a year over the next five years. It has continued expanding into new areas. Compact disc and tapes have been added to 90 stores bringing the total to 169.
The Texas Homecare DIY chain has proved harder to integrate than expected and is now only expected to break even by the year end. The company had previously said the chain would make a modest profit.
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