Sainsbury’s battles falling sales with lower prices in fight against Aldi and Lidl

Shares gain as much as 2.9% as supermarket makes ‘solid start’

Sam Chambers
Wednesday 08 June 2016 10:03
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Sainsbury's sales were down 0.8% in the 12 weeks to 4 June as food price deflation continued to grip the sector.
Sainsbury's sales were down 0.8% in the 12 weeks to 4 June as food price deflation continued to grip the sector.

Sainsbury reported first-quarter sales that beat analyst estimates as the UK grocer cut prices permanently to stem a loss of customers to cheaper competitors.

Same-store sales fell 0.8 per cent, excluding fuel, in the 12 weeks ended June 4, London-based Sainsbury said Wednesday.

That compared with the median estimate of 14 analysts for a 1.7 per cent decline.

Clothing sales rose nearly 5 per cent.

To combat the growth of discounters Aldi and Lidl, Sainsbury and its main competitors have simplified pricing, phasing out complex promotions and replacing them with lower prices on everyday products such as chicken, eggs and cheese.

All the UK’s mainstream grocers are suffering at the hands of the budget chains, which continue to win customers with their low prices and increased store numbers.

(Bloomberg

“We have made a solid start to the year,” Sainsbury Chief Executive Officer Mike Coupe said in the statement. “Market conditions remain challenging. Food price deflation continues to impact our sales and pressures on pricing mean the market will remain competitive for the foreseeable future.”

Sainsbury shares rose in early London trading, gaining as much as 2.9 per cent to 253.8 pence.

Sainsbury said the proportion of customers participating in promotional offers reduced further in the quarter to 23 per cent from 30 per cent a year ago. The grocer plans to phase out the vast majority of offers such as “buy-one-get-one-free” by August. Already this year it ended its Brand Match program after almost five years of pledging to be no more expensive than its main competitors.

“Everyone was expecting that getting rid of multi-buy offers would mean their sales would fall,” Charles Allen, an analyst at Bloomberg Intelligence, said by phone.

“But it seems they got more customers through the door because they liked the simplicity of the pricing.

Sainsbury’s recent permanent price cuts included a 1.35-kilogram whole chicken to £2.95 from £3.50, 12 free-range eggs to £1.75 from £2, and a 250-gram pack of grated Cheddar cheese to £1.75 from £2.

The grocer may face a new challenge after Wal-Mart Stores Inc.’s international CEO David Cheesewright pledged this week to cut prices further at the retailer’s Asda chain.

Coupe pledged to “maintain our price position” in the event of a further round of discounting.

© 2016 Bloomberg L.P

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