Tough year for shoppers, says Sainsbury's

Less than a week before the emergency budget the supermarket group, the UK's third biggest behind Tesco and Leeds-based Asda, said consumers will come under a huge amount of pressure this year.

"The consumer environment will be tough," said Sainsbury's chief executive Justin King. "Although people don't know what's coming in the Budget, consumers have factored it in."

He said there is little prospect of much improvement in the next two quarters, with the Government expected to hike taxes and cut public spending in next week's Budget.

He was speaking yesterday as the group announced the smallest rise in underlying sales for over five years with growth of just 1.1 per cent during the 12 weeks to June 12.

Sales have been hit by a steep drop in food price inflation and a jump in petrol prices that has left shoppers with less money to spend on groceries.

However new stores, online sales and demand for non-food items such as the vuvuzela trumpets made popular by the soccer World Cup are helping the group to take market share.

Mr King said the recent resignations at the helm of its main rivals – with the chief executives of Tesco, Asda, Bradford-based Morrisons and Marks & Spencer all moving jobs – could help Sainsbury's.

"Businesses are a lot more than just the chief executive, but it cannot be unhelpful to have change at the top among competitors," he said. "We hope very much that it causes them to break their stride."

He claimed that Sainsbury's has "every reason" to be confident about its ability to perform against a tough economic backdrop.

The group has seen strong sales via its Nectar loyalty card and it has plans in place to open an extra 1.5 million sq ft of new space this year.

"1.5 million sq ft is equivalent of us having a business the size of Netto," said Mr King, referring to Asda's recent purchase of the Netto budget chain.

"We are planning 20 new stores in the North and West, 20 extensions and 75 to 100 convenience stores. After that we expect to add 1.25 million sq ft a year," he added.

The group is also planning to expand its non-food ranges.

"Non-food continues to grow," said Mr King. "We are the fastest growing DVD retailer in the UK. The vuvuzela World Cup horn is available exclusively in Sainsbury's. We're selling out fast."

Analysts welcomed the performance.

"This is sound trading against the backdrop of tough comparatives," said Shore Capital analyst Clive Black, noting that Sainsbury's had turned in very strong figures in the same period last year.

The group, which has 525 supermarkets and 300 convenience stores, was more cautious than rival Tesco, which said earlier this week that it sees signs that consumer confidence is building.

"We don't see there's been a step up in confidence in any way," said Mr King. "Low to no growth supported by low to no food price inflation is the outlook for the next quarter or two."

Sainsbury's total sales rose 7.6 per cent, boosted by a 3.3 per cent contribution from new selling space, which the group said was performing ahead of its expectations.

Online grocery sales were up almost 20 per cent, while non-food sales grew at almost four times the rate of food.

Sainsbury's is periodically the subject of speculation that the Qatar Investment Authority (QIA), which owns about 26 per cent of the business following a failed takeover attempt in 2007, might make a fresh bid for the business.

Mr King said he had "no indication whatsoever" that QIA had changed its stance from being a supportive, long-term investor.

A matter of convenience

Sainsbury's opened 38 new supermarkets last year and has pinpointed convenience stores as a key area of growth, with up to 100 new stores in the format planned this year.

It has identified Yorkshire as a key target area for expansion and is sizing up a number of sites for new stores.

Sainsbury's is keen to expand out of its Southern heartlands into Yorkshire, Lancashire, the North East and Scotland.

While the retailer has a 20 per cent market share in the South, it has just 10 per cent in the North.

In Yorkshire its market share is just 11.2 per cent, making it a key target area for expansion. The group has 40 stores in Yorkshire, out of a total of 872.