No let-up, says Sainsbury’s as grocer beats Tesco

Despite the difficult market, Sainsbury’s managed to beat rival Tesco with a 1.9 per cent increase in like-for-like sales excluding fuel and including VAT, in the 12 weeks to June 11. That was higher than the one per cent growth reported by arch rival Tesco for the 13 weeks to May 28.

Sainsbury’s was boosted by a warm April, the royal wedding and expansion into non-food markets.

Chief executive Justin King said the market is very competitive, reflecting the poor economic backdrop, and he expects this to be the case throughout the year, with higher fuel costs putting pressure on consumers’ disposable income.

Mr King said the fuel price rises have “punched a hole” in consumers’ budgets with petrol rising by £5 a week on a year ago and by £10 a week on two years ago.

“I’ve been in groceries for 28 years and this is the toughest it’s ever been for consumers. It’s a continuation of something we’ve seen for three years and we see it persisting for the rest of this calendar year,” he said.

Despite the economic gloom, Sainsbury’s sees a strong future as while it has a 20 per cent share in the South, it has only 10 per cent everywhere else, giving it a large untapped market to go for. The group has highlighted Yorkshire as a key expansion target.

Asked why Sainsbury’s is outperforming Tesco, Mr King said the group has focused on value for money in its own way.

Its Basics discount range recently overtook Asda’s Smart Price brand to become second after Tesco’s Value label.

“We are giving customers a real opportunity to save money while sticking to our values. It’s a great way to save money without compromising your values,” said Mr King.

He added that it isn’t just customers on a tight budget who are buying Basics.

“Around 50 per cent of customers with Taste The Difference brands are also buying Basics. They may buy Basics tomatoes for cooking and Taste the Difference tomatoes for salads.”

Mr King said that 60 per cent of the group’s overall sales growth in the quarter came from fuel, reiterating the message from Tesco that the biggest issues facing UK shoppers are higher fuel prices and related utility bills.

Sainsbury’s has been growing sales faster than most rivals for several quarters, helped by strength in the more affluent south of England as well as an expansion into online and convenience shopping and non-food ranges like clothing.

Chief financial officer John Rodgers said the group would be interested in a “handful” of Iceland Foods stores if the portfolio was broken up as part of the auction of a 67 per cent stake being sold.