Supermarket giant Sainsbury’s joined its arch rival Tesco today in declaring that it will sacrifice profits this year to see off the threat from an aggressively price cutting Asda.
The latest evidence of a growing supermarket price war came as Britain’s second biggest grocer unveiled underlying pre-tax profits of £761 million, up 9%, in the year to 1 March. The underlying retail operating profit of £1.036 billion was up 7.2%. Sales of £31.56 billion were up by 3.1%.
But the company said profits could be slightly lower this year as it invests in keener prices for customers in an increasingly competitive market.
It said: “In the year ahead we are guiding towards lower profitability to give us the capacity to sustain our strong competitive position that we’ve built over the past four years. We expect to deliver retail underlying operating profit of around £1 billion.”
Earlier this month Tesco said its profits could be up to £400 million lower this year if it is forced to respond to a price cutting “Rollback” offensive from a revived Asda under the leadership of Allan Leighton.
In March Asda slashed the cost of 1,500 items by as much as 45 per cent.
Aarin Chiekrie, equity analyst, Hargreaves Lansdown, said Sainsbury’s “guidance looks quite conservative at around 8% below market expectations, pointing to broadly flat revenue and profit this year.
“That echoes conservative guidance from Tesco last week, and gives Sainsbury plenty of wiggle room to get its hands dirty if competition with the likes of ASDA and Tesco heats up. But shy of an all-out price war, there could be room for positive surprises as the year progresses. “
Richard Hunter, head of markets at interactive investor, said: “With the sector about to be embroiled in a trade war of its own, Sainsbury is preparing for the fight with some added momentum which should provide some protection.
“Given that in terms of market share, Sainsbury and Asda are more closely linked with numbers of 15% and 12.5% respectively, it is perhaps Sainsbury rather than Tesco who could be under most pressure.
“However, these numbers are largely ahead of expectations, and Asda will have its work cut out if it is to upset the apple cart.”
Sainsbury’s also unveiled plans for its biggest store opening programme “in over a decade” as it seeks to increase its UK market share.
The company said it bought 14 new supermarket sites during the last financial year “in key target locations” from Homebase and Co-op.
Most of these are expected to reopen as Sainsbury’s by the end of the current financial year. The company says it expects to open 15 supermarkets in total during 2025/26 as well as 50 new convenience stores over the next two years.
In total that will add more than 400,000 sq ft of new space and “bring over 700,000 more people within a ten-minute drive of a Sainsbury’s store.”
Sainsbury’s chief executive Simon Roberts said: “We’ve transformed our business over the past four years. We have created a winning combination of value, quality and service that customers love, investing £1 billion in lowering our prices.
“More people are choosing Sainsbury’s for their main grocery shop as a result, delivering our highest market share gains in more than a decade. We are committed, above all else, to sustaining the strong competitive position we have built — consistently giving customers the great value they have come to expect from Sainsbury’s — and we expect to continue to outperform the market.”
The supermarket group also announced a share buyback of £200 million plus a special dividend of £250 million.
