Morrisons sales slump as Sainsbury’s dismisses checkout war

Sainsbury's outgoing CEO Justin King
Sainsbury's outgoing CEO Justin King
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SAINSBURY’S has dismissed threats of a supermarket price war, saying that Morrisons’ £300m price-cutting spree is simply an attempt to catch up with its rivals.

Last week Morrisons announced price cuts of up to 60 per cent on 1,200 key goods, prompting reports of a supermarket price war.

But yesterday Sainsbury’s claimed Morrisons was lagging behind its rivals on price.

Incoming chief executive Mike Coupe said: “If you look at what Morrisons have done, they’ve come fairly late to the party. So to some extent they are catching up with the market.”

Outgoing chief executive Justin King, who has presided over 10 year of growth at Sainsbury’s, said: “If there are significant changes in price - particularly brands, we’ll cover it off.”

Morrisons revealed a deeper slump in sales today as the effects of a price war in the supermarket sector continued to bite.

The Bradford-based chain said like-for-like sales - trading in stores open for longer than a year - dived by 7.1% in the 13 weeks to May 4. This was much weaker than the 4.5% drop forecast in the City and meant overall sales were down by 4.2% in the first quarter of its financial year.

Last week, Morrisons launched an “I’m Cheaper” campaign which cut prices across 1,200 products by an average of 17%.

The move came after Britain’s fourth biggest supermarket stumbled to a £176 million annual loss in March and issued a profits warning, sending shares down 12%.

Neil Saunders, managing director of retail consultancy Conlumino, described the latest figures from Morrisons as woeful, particularly as they followed a 1.8% decline in the same period a year earlier.

He said: “The issue for Morrisons is that if its price cuts do not deliver increased volume, they will simply have a negative impact on profitability and will weaken the chain still further. Sadly, we believe this is a distinct possibility.”

The firm is planning to invest £1 billion over the next three years to improve its competitiveness and will also launch a new loyalty card scheme.

Morrisons chief executive Dalton Philips said today: “The plans we set out at our results in March are on track. The reaction of our customers to the 1,200 ‘I’m Cheaper’ price cuts we announced last week has been very positive.

“Although it will take time for their full impact to be felt, we are confident that these meaningful and permanent reductions in our prices will enable our clear points of difference to resonate strongly with consumers.”

The business maintained its underlying full-year profit before tax range of between £325 million and £375 million.

The big four supermarkets - Tesco, Asda, Sainsbury’s and Morrisons - have seen their sales squeezed in recent years between discount retailers such as Aldi and Lidl and upmarket rival Waitrose.

Morrisons added that its fledgling online sales business had done well in Warwickshire and Yorkshire and would begin deliveries in London next Monday.

The supermarket said that by the year-end its online business will reach up to 50% of UK households and, together with its smaller convenience stores, is expected to account for more than £500 million of sales per year.

Sainsbury’s reported a 5.3 per cent increase in annual profits to £798m yesterday, beating its main rivals although it warned of tough times ahead.

The big four grocers are all being outpaced by growth at discounters Aldi and Lidl. Upmarket chains Waitrose and Marks & Spencer are also gaining share.

Tesco, Asda and Morrisons have been cutting prices to try to combat the discounters, with Morrisons firing the latest salvo.

Mr King said: “Whatever happens in the price skirmishes that we’re currently seeing, we’re a business that’s very well-equipped to succeed in that environment.

“We’ll do what we’ve always done, which is quietly focus on looking at the detail, the 15,000 prices we audit every week, making sure we stay competitive.”

Mr King said he was confident Sainsbury’s offer sets it apart from its rivals.

Its strategy focuses on own-brand products, its “Brand Match” pricing scheme, which offers money back vouchers to match Tesco and Asda’s prices, and its Nectar loyalty card.

“The core issues in customers’ minds go way beyond price,” said Mr King, pointing to Sainsbury’s commitment to sourcing more products from Britain, paying a fair price to dairy farmers and selling “cage-free” eggs.

He forecast underlying sales growth in 2014-15 similar to the 0.2 per cent achieved in the 2013-14 year - far better than expectations for Tesco and Morrisons.

Group sales, including VAT sales tax, rose 2.8 per cent to £26.4bn.

Analyst Sam Hart at Charles Stanley said: “Sainsbury’s reported a solid set of full year results which were towards the upper end of market expectations. Underlying sales growth was flat, but the combination of new space and good control of operating costs led to profit progression.

“Trading conditions in 2014/15 are expected to remain very challenging.”

Analyst Darren Shirley at Shore Capital said: “Sainsbury’s has reported preliminary results ahead of market expectations. We believe Sainsbury’s management team deserve considerable credit for delivering such a robust performance in the final results before Justin King’s departure.”