Food prices are likely to continue falling until at least the end of this year, the boss of Sainsbury’s has said as he reported a fifth consecutive quarter of declining sales.
The supermarket has absorbed record levels of food deflation as the price of staples such as meat, fish, dairy and fresh ready meals fell, Mike Coupe said.
Sainsbury’s has already spent about half the £150m it set aside in November to fund 12 months’ worth of price cuts, as consumers benefit from a supermarket price war fuelled by the rise of the discount chains and lower global commodity prices.
Since November, Sainsbury’s has cut the prices of more than 1,100 products in an attempt to win and retain customers in a tough trading environment.
Giving a trading update for the 10 weeks to 14 March, Coupe said: “We expect the market to remain challenging for the foreseeable future. Food deflation is likely to persist for the rest of this calendar year, and competitive pressures on price will continue.” He said Sainsbury’s food prices were falling by about 2.5%, ahead of the wider market.
Falling prices drove sales excluding fuel down 1.9% in the fourth quarter – stripping out sales at stores open less than a year. The retailer had previously suggested the drop would be about 2%.
It was an acceleration from a 1.7% fall in like-for-like sales in the third quarter. Until last March the supermarket had recorded nine straight years of growth.
Sainsbury’s said total sales in the fourth quarter slipped 0.3% excluding fuel, as strong growth at its convenience stores and website helped offset declines at its main supermarkets.
Coupe said Sainsbury’s was “beginning to see positive signs” of an improvement in trading as the volume of items it was selling had increased and more customers were visiting its stores. Sales of the 1,100 products where prices were cut rose by more than 3%, Coupe said.
“There are some signs that the market is returning to volume growth after perhaps four years of declines,” said James Anstead, an analyst at Barclays.
But Coupe cautioned it was “too early to call the turn”.
“We don’t see any respite any time soon. We can’t rule out the idea that price competition could get more intense rather than less,” he said.
The shares rose 2% in early trading to 275p but fell back to trade at 265p, down more than 1% later in the day.
While shoppers have about £10 a week more cash to spend partly thanks to falling petrol prices, Coupe said history suggested it could take at least a year of being better off before deciding to spend more on food. He said in the short term people were more likely to buy large consumer goods such as cars or to eat out more.
Coupe said Sainsbury’s was continuing to invest in the faster growing parts of its business, opening more convenience stores and enabling shoppers to pick up groceries ordered online from 100 stores by the end of this year. The chain is also improving the quality of 3,000 products and replacing some of its previous promotions – such as three for £10 on some meat and fish products – in favour of every-day, lower prices, which it called “value simplicity”.
“This has been well received by our customers and allows them to budget and shop more conveniently,” Coupe said. He denied Sainsbury’s had been boosting sales with heavy use of discount vouchers. Asda boss Andy Clarke has blamed rivals’ use of vouchers for his chain’s underperformance. But Coupe said Sainsbury’s had reduced its promotions.
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Phil Dorrell, director of the retail consultancy Retail Remedy, said: “As silver linings go, it’s not a bad one. The value of sales is down, but volume is up as Sainsbury’s aggressive discounting has lured more people through the door. Those price cuts – on more than 1,100 products – are hurting the bottom line in the short term, but in the long term might just stop the rot.”
