Sainsbury's warning as sales slump

Supermarket Sainsbury's warned that the market is growing at its slowest pace for nearly a decade as it broke a nine-year run of underlying sales growth.

Sainsbury's has said sales slumped 3.1% in the 10 weeks to March 15 - the first fall after 36 consecutive quarters of growth
Sainsbury's has said sales slumped 3.1% in the 10 weeks to March 15 - the first fall after 36 consecutive quarters of growth

The group revealed that like-for-like sales excluding fuel slumped 3.1% in the 10 weeks to March 15, marking a sharp reversal of recent fortunes and the first fall after 36 consecutive quarters of rising sales in a row.

Outgoing boss Justin King said the group came up against tough comparatives from a year earlier when it outperformed many rivals amid the horsemeat scandal and benefited from the timing of Mother's Day and Easter trade.

But he stressed that the market was facing tough conditions in the latest downbeat trading statement from one of the "big four" players as cost-conscious consumers increasingly turn to discounters such as Aldi and Lidl.

He said: "The market is now growing at its slowest rate since 2005, with falling food inflation in particular benefiting customers."

He added: "Although some economic indicators are showing an improvement in the health of the economy, we expect the outlook for customers to continue to be challenging for the coming year."

The group's fourth-quarter sales decline was steeper with fuel included, falling by 3.8%.

Experts at Shore Capital Stockbrokers slashed full-year profit forecasts for Sainsbury's as they said the sales slide was slightly worse than already- downbeat expectations.

But Sainsbury's appeared to resist being drawn into the price war waged by its three main rivals to take on the might of the discount chains.

Morrisons last week followed the lead of Tesco and Asda, pledging to invest £1 billion over three years after it tumbled to a £176 million annual pre-tax loss and warned over results for the year ahead.

The dismal figures from Morrisons sparked a shares rout among listed supermarkets amid worries over a full-blown price war.

All four of the major players have reported sliding sales in recent months, while the likes of Aldi and Lidl have benefited from a switch to cheaper alternatives.

But despite the fourth-quarter sales plunge, Sainsbury's said it had continued to outperform its main rivals and bucked the trend for falling market share, held at 17% in the 12 weeks to March 2, according to recent Kantar Worldpanel data.

Instead of unveiling a swingeing price-cutting campaign, Sainsbury's highlighted the "value for money" of its popular own-brand ranges, claiming they were already 20% cheaper than branded equivalents and now make up more than half of all sales - 51%.

It also put faith in its growing clothing ranges, boosted by a collaboration with designer Gok Wan, convenience store business and online delivery offering.

The group saw a million transactions in one day across its 91 convenience stores for the first time during its fourth quarter and said growth remained strong at 15%, while online grocery trade rose by 6%

Shore Capital's retail analysts said the sales results will be a "particular disappointment" for Mr King, who steps down after 10 years at the group's annual meeting in July, when he will hand over to commercial director Mike Coupe.

They said: "W e will be interested to see how Sainsbury's approaches the greater discount challenge.

"Whilst it is not losing out to the same extent as its peers, we do not believe that Sainsbury's is blind to the challenge."

Sainsbury's said that, while it will not launch an explicit price-cutting programme, it has already lowered the cost of of milk, bread and eggs in response to moves by its competitors and confirmed it would follow suit as and when they bring prices down.

Mr King said the retailer was "not at all complacent" about the threat of the discount chains, but disagreed with Morrisons boss Dalton Philips, who said last week that it was the biggest structural shift in the grocery sector since the advent of supermarkets in the 1950s.

"The discounters have been around for years - they're not a new phenomenon," said Mr King.

He said that while discounters were growing strongly and now adding more supermarket space than the grocers, their market share is lower today than it was in the early 1990s, when they had around 12% of the market.

He was also dismissive of a price war, claiming it was all part of the "cut and thrust" of the market.

"We should all be pleased with lower prices and in the long run that's good for the market," he said.

The fourth-quarter sales drop threatens to mark the end of an era for Sainsbury's after a resurgent performance in recent years.

Fears over the group's sales record came after it eked out paltry growth of 0.2% over its Christmas quarter and admitted it was likely to miss previous expectations for a full year like-for-like sales increase of 1% to 1.5%, prompting analysts to shave annual profit forecasts.

Full-year like-for-like sales have now been left just 0.2% higher after the fall in the final quarter.

Mr King vowed not to pass the pricing pressures on to farmers who supply the firm, confirming Sainsbury's will honour commitments made under its dairy development group.

Shares in the group brushed off the sales disappointment, rising by around 1% despite concerns among analysts over profit downgrades for the new financial year.

But Mike Dennis at Cantor Fitzgerald offered hope of a bounce back in trading at the chain.

He said: "F irst quarter trading should improve, but that will also depend on the impact of price deflation on high volume lines - bread, milk, eggs.

"However, the market outlook is for lower food price inflation and potentially more trading down to own label products - Sainsbury's is well placed in own label quality and states that its own label range is now 51% of sales versus 47% for the total grocery market."