Sainsbury expects retailers’ difficult year to continue

Sainsbury predicted no let-up in the difficulties facing the UK supermarket industry, taking the shine off a better-than-expected Christmas quarter.

Same-store sales in the next three months will be similar to the 2.1% drop in the first half of the fiscal year, the London-based grocer said yesterday, signaling a fifth consecutive quarterly decline.

Sainsbury and competitors, including market leader Tesco, have lost market share as more customers switch to German discounters Aldi and Lidl. Their response has been to cut prices, while stepping up investment in online and convenience-store offerings, putting profitability at risk.

“It would be a very brave person who would call the turn at this stage,” chief executive Mike Coupe said on a call with reporters.

“We see further pressure on JS sales as Tesco invests to recover some lost market share,” Mike Dennis, an analyst at Cantor Fitzgerald, wrote in a note to clients.

Price cutting across the industry is leading to deflation, which Sainsbury said is running at 0.5% to 1%. The grocer yesterday announced reductions on more than 700 products as part of an investment worth £150m a year.

Wal-Mart Stores’ Asda chain also said it is cutting prices to the tune of £300m during the first quarter of 2015. Sainsbury’s price proposition “has never been better versus peers,” Mr Coupe said. The grocer will “match whatever competitors do” on price, he said.

That prospect concerned analysts ahead of today’s announcement from Tesco. “The implications for Sainsbury’s margins could be deeply unsettling,” Bryan Roberts, at Kantar Retail in London, said.