J Sainsbury (SBRY) Plc, the U.K.’s third- largest supermarket chain, reported the slowest sales growth in eight years as Tesco Plc fought to win back customers and others defected to more upscale chains and discounters.
Sales at stores open at least a year rose 0.9 percent, excluding revenue from fuel, in the 14 weeks ended Jan. 5, London-based Sainsbury said today in a statement. That was the weakest of 32 consecutive quarters of gains, though matched the median estimate of 11 analysts compiled by Bloomberg.
Growth is weakening at Sainsbury as shoppers substitute branded products for cheaper own-label versions and Tesco starts to find its feet after two years of faltering sales. The market leader may tomorrow report its strongest sales performance since 2010, according to analyst estimates. The upscale Waitrose chain and hard discounter Aldi are also making inroads into the grocery market as shoppers seek both luxury and low prices.
“It is common sense to suggest that Sainsbury will be negatively impacted by a recuperating Tesco (TSCO),” said Clive Black, an analyst at Shore Capital with a hold recommendation on the shares. The third-quarter sales represented ‘a satisfactory performance in demonstrably dull market conditions.”
Chief Executive Officer Justin King said he expects the “challenging economic backdrop” to persist. Customers will seek to “rebalance their household budget” after Christmas and will spend “cautiously” in the early months of 2013, he said.
The slowdown in revenue growth was caused by comparison with a buoyant Christmas a year ago, a reduced contribution from store extensions and an increase in the proportion of own-label sales, King said on a conference call with reporters. Sainsbury’s own-brand range of champagne costs 10 pounds less per bottle than the leading brands, he said.
The grocer’s strongest performing own-brand label was the mid-tier By Sainsbury range, which increased sales by about 5 percent as shoppers switched from the leading branded goods, King said. The retailer didn’t mention its premium Taste the Difference range, which was the best performer a year ago.
The grocer is “very content” with its performance, the CEO said on a conference call. “We think when the reporting season is over, that we will emerge clearly as a winner.”
Sainsbury’s share of U.K. grocery spending rose to 17.1 percent in the 12 weeks ended Dec. 23 from 17 percent a year earlier, Kantar Worldpanel said yesterday, as the retailer added non-food lines such as clothing and invested in own-brand ranges. Tesco’s share fell to 30.5 percent from 30.6 percent a year earlier, though the 0.1 percentage point drop was better than an average 0.4 point drop for 2012, the researcher said.
Tesco is investing 1 billion pounds ($1.6 billion) to provide additional staff, new products and brighter stores in the wake of the failed Big Price Drop campaign and the first reduction of profit guidance in two decades. It’s also seeking to woo shoppers with money-off vouchers amid a market that faces record levels of promotions and rising food-price inflation.
A Tesco revival will “absolutely not” hurt Sainsbury, King said. “Customers shop around and they’re doing it more than they ever have done, but we think we have the tools to get the job done for customers and we’ve been helping them save money and it’s that that keeps them coming back.”
The CEO said he expects Sainsbury to perform well over the coming quarter, helped by a price-matching promise on branded goods, competitive prices and targeted promotions.
Asked about speculation over his future at the grocer, King said he is “here for the long-term,” while adding that the company has “a very talented top team and we are ensuring we can cope with any eventualities.”
Group Commercial Director Mike Coupe leads a race to succeed King as CEO, people familiar with the matter told Bloomberg News last month. Sainsbury may announce as soon as February that King will step down after about nine years in charge with the 51-year-old executive likely to stay on until 2014 to ensure a smooth handover, the people said.
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