UPDATED: Sainsbury's ready for price war after fall in sales

Asda’s parent company Wal-Mart indicated last week that a new price offensive is on the way following disappointing sales at the Leeds-based chain.

Sainsbury’s CEO Mike Coupe said: “For the last God knows how many years there’s been lots of noise from Asda and indeed lots of noise from everybody else.

“If things change, we’ll deal with that, but we’ll maintain our price position,” he added.

Sainsbury’s, Britain’s second biggest supermarket after Tesco, reported a 0.8 per cent drop in like-for-like sales in the 12 weeks to June 4.

The fall marks a setback after a return to quarterly like-for-like growth for the first time in more than two years during the previous three months, when sales edged 0.1 per cent higher.

Mr Coupe said the decline wasn’t due to the scrapping of Brand Match, which gave money-off vouchers if branded goods at Asda were less expensive

“We’ve never been more competitive on price,” he said.

“We think our business has benefited from making prices simpler. We’ve been able to invest in underlying pricing.

“Our customers would say they want simplicity in pricing. They don’t need a maths degree to go shopping.”

Asked whether the 0.8 per cent fall in like-for-like sales was a blip, Mr Coupe said: “It’s really difficult to predict the future. We had a particularly unpleasant April when it was nice last year.

“We’re confident in our underlying trading strategy and we are outperforming our peers.”

He said that customers are shopping more frequently and Sainsbury’s is seeing increasing transactions and volumes, but the basket size continues to fall as people ditch the weekly shop in favour of smaller shops several times a week.

Sainsbury’s added that market conditions remain challenging.

“Food price deflation continues to impact our sales and pressures on pricing mean the market will remain competitive for the foreseeable future,” said Mr Coupe.

The first quarter update comes as Sainsbury’s £1.4bn takeover of Argos owner Home Retail Group faces scrutiny from the competition watchdog.

The Competition and Markets Authority (CMA) said last month it was looking into whether the tie-up with Argos owner Home Retail could result in a “substantial lessening of competition”.

It will consider comments on the deal and decide whether to launch an inquiry by July 25.

Mr Coupe said he was “as confident as we can be” that the Home Retail deal will be cleared in the CMA’s initial inquiry, with the group adding that it remains on track to complete the takeover in the third quarter.

The deal will allow Sainsbury’s to sell more goods such as consumer electronics and reduce its reliance on food and drink.

Sainsbury’s has slashed prices on staple items such as whole chickens, free range eggs and cheddar cheese in response to customer feedback.

It now has around 23 per cent of goods on promotion, down from more than 30 per cent a year ago.

Mr Coupe gave hope of an easing in the food price deflation that has been hitting the sector hard, saying it is now running at around minus 1 per cent against falls of up to 2.5 per cent last year.

But Sainsbury’s believes food price deflation will continue until at least the autumn.

The group’s clothing arm is helping offset the food price woes, with sales growth of nearly 5 per cent in its first quarter.

Clive Black, at Shore Capital, said the first-quarter sales update from Sainsbury’s was “marginally disappointing but far from a car crash”.

Analysts at Jefferies said in a note: “While investors continue to worry about the possibility of an Asda backlash...Sainsbury’s appears to be paying the heavier price of Tesco taking back customers.”

Asda is the UK’s third biggest grocer and Bradford-based Morrisons lies in fourth position.