Grocer waiting for the feelgood factor

Sainsbury's reported a fifth successive quarter of falling sales and said it expects conditions to remain challenging for the "foreseeable future".

The group, Britain’s third biggest grocer after Tesco and Asda, said customers are £10 to £11 better off a week, but they are spending this money on things they deprived themselves of during the recession such as travel, new cars and eating out.

Chief executive Mike Coupe said: “Eventually customers will start spending more money on groceries. People tend to trade up in terms of products and where they shop.”

Asked when supermarkets are likely to see this positive effect, he refused to be drawn.

“I genuinely don’t know,” he said.

“If customers are feeling better off, we see a tendency to buy more stuff of trade up. Maybe we’ll see a bit more ‘Taste the Difference’ sales. It’s very early days.”

Sainsbury’s played down the threat posed by rival Tesco, which is seeing a renaissance under new chief executive Dave Lewis.

“I’ve competed with Tesco my entire career,” said Mr Coupe.

“The important thing for us is to focus on doing what we do. We’re confident in the plan that we set out to execute and the stuff that we’ve done so far seems to be pointing in the right direction.”

Shore Capital analyst Clive Black said: “It feels to us that Sainsbury’s could be particularly negatively impacted by a sustained better out-turn from Tesco UK, making Mr Coupe’s assertion that Sainsbury’s will outperform its peers all the more interesting.”

Sainsbury’s like-for-like fell 1.9 per cent in the 10 weeks to March 14, in line with company guidance. This follows a third-quarter fall of 1.7 per cent.

Mr Coupe said the group is seeing volume and like-for-like improvements against a heavily deflationary backdrop.

Sainsbury’s said measures that were announced at a strategic update in November are working, enabling it to combat Tesco and the discounters.

The group is cutting costs, dividends and new store openings to fund an extra £150m in 1,100 price cuts.

Mr Coupe said the price cuts have led to volume growth of more than three per cent.

The grocer is also investing in improving product quality on over 3,000 lines and expanding its non-food, online and convenience business.

Convenience store sales rose 14 per cent, while online grocery order numbers increased 14 per cent and online sales rose six per cent.

Mr Coupe said food deflation is likely to persist for the rest of this calendar year and the group expects the market to remain challenging for the foreseeable future.

Sainsbury’s is expected to report the first drop in annual profits in a decade when it reports annual results in May.

Analyst Bruno Monteyne at Bernstein said: “Sainsbury’s once again showed a position in the growth channels is helping them outperform.

“These are the signs of a well-established management team continuing to execute on a strategy that works.”