Sainsbury’s has warned that profits are not likely to rise this year as it braces for an expected price war among the UK’s supermarkets and faces rising costs from higher wages.
The group joined Tesco, Next and Marks & Spencer as one of a handful of retailers who have made £1bn in profits in the year to 1 March, but it does not expect to beat that figure this year despite plans to cut costs with more automation and warehouse closures.
Simon Roberts, the chief executive of Sainsbury’s, indicated that the group was ready to take on Asda, which has pledged to cut prices in an attempt to win back market share, saying his business was “committed, above all else, to sustaining the strong competitive position we have built – consistently giving customers the great value they have come to expect”.
Roberts said there was “pressure in the system” from the national insurance and minimum wage rises that came in this month, as well as new regulations on packaging that would inevitably “feed through to inflation”. However, he said the group would continue to invest in keeping prices down after spending £1bn doing so over the last four years.
The CEO said the company was “watching developments very closely” on US tariffs and doing “a lot of work to manage the risk” but said the industry had become adept at tackling supply chain challenges after more than four years of disruption starting with the Covid pandemic.
“It is a really intensely competitive industry but we are in the strongest place we have ever been and we intend to stay there,” Roberts said. He said keeping prices down was important as “households up and down the country are worried about bills and the economic news they are hearing”.
He said the company had cut £350m in costs last year and expected to cut a further £650m over the next two years.
Sainsbury’s pledge to maintain its competitive edge comes after Tesco, Sainsbury’s and M&S had billions of pounds wiped off their stock market value last month after the UK’s third-biggest supermarket chain said its profits were likely to decline this year as it invested more in cutting prices and putting more staff in shops.
Clive Black, Sainsbury’s house broker at Shore Capital, said the retailer’s prediction that it would not grow profits this year meant it was “showing it is determined to hold on to its strengthened value credentials”.
The retailer is closing two of its five non-food warehouses to save £70m a year – with the retailer saying more than 1,400 jobs could be affected when it first announced the plans two years ago.
It will save a further £70m with better tills, including self-checkouts, and introducing more technology to prevent theft at self-service tills and help more shoppers scan and pay for goods by themselves.
It said that 70% of its sales were now self-service, up from 40% five years ago.
Roberts called on the government to tackle the de minimis rule, which enables Chinese online sellers such as Shein to sell goods into the UK without paying import taxes, and to adapt business rates so they did not penalise physical retailers and favour online selling.
In a statement released on Thursday, Sainsbury’s said annual pre-tax profits rose 38.6% to £384m but underlying operating profit hit £1bn if one-off items, such as those related to the closure of cafes and hot food counters announced in January, were excluded.
Growth was led by the Sainsbury’s chain, which increased sales by 4.2% to £26.6bn, but profits fell back at Argos, where sales fell 2.7% to £4.9bn, behind expectations.
The supermarket group, which owns Habitat as well as Argos, plans to open 15 new supermarkets – 12 on sites it bought from the collapsed DIY group Homebase – and 25 more convenience stores.
Roberts said: “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.”
