Sainsbury's nine-year run of sales growth ends

LONDON Tue Mar 18, 2014 2:48pm GMT

1 of 3. The outline of a signage remains on the wall of a Sainsbury's store about to be demolished in London March 18, 2014.

Credit: Reuters/Luke MacGregor

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LONDON (Reuters) - British grocer J Sainsbury's nine-year run of quarterly sales growth came to an end on Tuesday, underlining the pressure on the industry as a battle over prices intensifies in a fragile economic recovery.

Britain's grocery market is growing at its slowest rate since 2005 due to falling food price inflation and as subdued wages growth keeps consumer spending in check.

The "big four" grocers - market leader Tesco, Wal-Mart's Asda, Sainsbury's and Wm Morrison - are all being outpaced by sales growth at discounters Aldi and Lidl, while upmarket chains Waitrose and Marks & Spencer are also gaining share.

Last week No. 4 supermarket group Morrisons posted its lowest annual profit for five years, issued a huge profit warning and sparked fears of an industry price war after saying it would invest 1 billion pounds ($1.7 billion) in price cuts over three years to win back customers from discounters.

Its statement, which followed price cutting moves from Tesco and Asda, wiped over 2 billion pounds off the stock market value of UK grocery retailers.

Sainsbury's said it would ensure its prices remained competitive and had already dropped them for milk, bread and eggs in response to rivals' recent moves.

"If and when we see that activity come forward we will match the prices, we will maintain our price position as we always have done," commercial director Mike Coupe, who will succeed Justin King as chief executive in July, told reporters.

Shares in Sainsbury's, down 21 percent over the last six months, were up 0.6 percent to 313.4 pence at 1135 GMT, valuing the business at about 5.9 billion pounds.

"Whilst it is not losing out (to the discounters) to the same extent as its peers, we do not believe that Sainsbury's is blind to the challenge," said Shore Capital analyst Clive Black.

CUT AND THRUST

King said he disagreed with Morrisons CEO Dalton Philips who said last week the extent of change the discounters had prompted in the grocery market had not been seen since the late 1950s.

"It's wrong to characterise what's happening as something completely new because discounters have been ever present in my 30 years (career) and there have been times when they've had significantly larger market share than they have today," he said, noting discounters had a share of about 12 percent in the early 1990s compared with 7.5 percent currently.

He said price cuts were "part of the cut and thrust of this market," adding: "The only model that grows profit sustainably in the long term in grocery retail is a growing top line. That's what we've achieved for nine years."

Sainsbury's said sales at stores open over a year fell 3.1 percent, excluding fuel, in the 10 weeks to March 15, its fiscal fourth quarter.

That compared with analysts' forecasts in a range of down 2-3 percent and growth in the third quarter of 0.2 percent.

The firm faced a tough comparative number - a rise of 3.6 percent in the same period last year, when it benefited from the discovery of horsemeat in competitors' products.

The later timing of Easter and Mother's Day also worked against it this year.

Prior to the fourth quarter, Sainsbury's had reported like-for-like sales growth for 36 straight quarters.

"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 company said.

Sainsbury's said, however, that it was confident its differentiated offer, which includes a focus on own brand products and its Nectar loyalty card would allow it to outperform peers in the year ahead.

The firm's total fourth-quarter sales fell 1.0 percent, excluding fuel.

(Editing by Kate Holton and Mark Potter)

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