Sainsbury's predicts flat profits as supermarket price war hots up
Sainsbury’s has indicated that profits will be flat over the next year as it faces intensifying competition from rivals on price and a surge in costs.
It came as the UK’s second largest supermarket chain reported that sales and profits grew over the year to March.
The retailer said full-year sales, excluding fuel, rose by 4.2 per cent to £26.6 billion as it increased its share of the UK grocery market.
Meanwhile, retail underlying operating profits rose by 7.2 per cent to £1.03 billion for the year.
It told shareholders that these profits will be about £1 billion for the new financial year as stronger sales volumes are expected to be offset by weaker profitability.
Earlier this month, rival Tesco said it would see weaker profits as it sets more money aside to invest in price cuts.
It comes amid pressure from Asda, the UK’s third largest chain, after its returning boss Allan Leighton said it would slash prices in a bid to turn around its fortunes.
On Thursday, Sainsbury’s said it was growing market share after investing £1 billion in improving its pricing.
The company also said it was launching its “biggest investment in expanding our store space in over a decade”, with about 40 new stores opening this year.
Grocery sales grew by 4.5 per cent for the past year, while sales at its Argos arm slipped by 2.7 per cent to £4.9 billion.
However, the retailer said it has started the new financial year with “good trading momentum” across all its brands after Argos grew in the final quarter.
Simon Roberts, chief executive of Sainsbury’s, said: “We have created a winning combination of value, quality and service that customers love, investing £1 billion in lowering our prices.
“Our belief in the strength of Sainsbury’s offer has driven our decision to make our largest investment in expanding our store space in over a decade as we open supermarkets in key new locations and extend food space within many of our existing stores.”
Mr Roberts added the evolution of its Nectar loyalty scheme is paying dividends for both customers and the supermarket.
"Our customer offer is the strongest it has ever been. We've expanded Aldi Price Match to more products than ever before in addition to offers on more than 9,000 products with Nectar Prices.
"Customer satisfaction with product availability is at record levels and we're continuing to add more new, innovative products to our ranges.
"Nectar is taking our ability to create personalised value and loyalty to the next level and our long-term contracts with farmers and suppliers demonstrate our commitment to resilience and sustainability across the UK food system.”
He added: “Our belief in the strength of Sainsbury's offer has driven our decision to make our largest investment in expanding our store space in over a decade as we open supermarkets in key new locations and extend food space within many of our existing stores.
"It's also why we continue to invest in our colleagues, whose dedication will power our Next Level plan. Working together with our suppliers we will continue to deliver for our customers, our shareholders and the communities we serve."
Speaking last week in advance of the Sainsbury’s results announcement, Reena Sewraz, Which? retail editor, said: “A supermarket price war could be good news for shoppers who’ve faced years of pressure on their household budgets.”