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Sainsbury Sees Resumption of Growth Amid ‘Price Skirmish’

Photographer: Chris Ratcliffe/Bloomberg

Customers browse the fruit and vegetable section of a Sainsbury's supermarket store. Sainsbury’s focus on fresh produce and premium own-brand food has helped the supermarket chain boost market share in recent years at the expense of market leader Tesco Plc and smaller competitor Wm Morrison Supermarkets Plc. Close

Customers browse the fruit and vegetable section of a Sainsbury's supermarket store.... Read More

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Photographer: Chris Ratcliffe/Bloomberg

Customers browse the fruit and vegetable section of a Sainsbury's supermarket store. Sainsbury’s focus on fresh produce and premium own-brand food has helped the supermarket chain boost market share in recent years at the expense of market leader Tesco Plc and smaller competitor Wm Morrison Supermarkets Plc.

J Sainsbury Plc (SBRY) stuck to a forecast that same-store sales growth will resume this year as it fends off the discounters and competitors’ price cuts by focusing on fresh produce and premium own-brand food.

The U.K. grocer is confident it will continue to outperform the wider industry for the rest of the year and is playing its part in a “price skirmish,” with competitors, Justin King, Sainsbury’s outgoing chief executive officer, said today.

The shares rose as much as 4.6 percent in London trading as investors looked beyond today’s report of a second straight drop in same-store sales. After nine years of unbroken growth, Sainsbury is finding life harder as its main competitors get tough on price to combat the challenge of the discounters.

King’s commentary on the outlook “is very upbeat and means they are not collapsing,” said Bruno Monteyne, an analyst at Sanford C. Bernstein in London.

The shares were up 2.1 percent at 336.8 pence as of 10:38 a.m. in London, trimming their drop this year to 7.7 percent.

The increased importance of price in the grocery market can’t be ignorned, King said today. Market leader Tesco Plc, (TSCO) Wal-Mart Stores Inc.’s Asda and smaller competitor Wm Morrison Supermarkets Plc (MRW) have all lowered prices in response to the growth of German discounters Aldi and Lidl.

“Our pricing positioning is the strongest it’s ever been,” King said on a conference call with reporters.

Sales Drop

Sainsbury’s Brand Match campaign, which ensures that shoppers don’t pay over the odds for branded goods by checking prices against rivals at the point of sale, is reassuring customers that the grocer remains competitive, he said.

Sales at stores open at least a year fell 1.1 percent, excluding gasoline, in the 12 weeks ended June 7, London-based Sainsbury said today. That compared with the median estimate of 14 analysts in a Bloomberg News survey for a 1 percent drop.

The decline represented an improvement on the 3.1 percent drop of the previous three months. Andrew Gwynn, an analyst at Exane BNP Paribas in London, doesn’t expect same-store sales growth to resume at Sainsbury until the fourth quarter and predicts a decline of 0.4 percent for the year as a whole.

“Industry growth remains low, with very low levels of inflation,” Gwynn said. As well as losing ground to the discounters, Sainsbury is struggling to keep up with the expansion of the upscale Waitrose chain, he said.

Taste the Difference

Sainsbury expects “similar” same-store sales growth for the year to last year’s 0.2 percent, said King, who is due to leave next month after a decade at the helm, and will be succeeded by Commercial Director Mike Coupe.

“By definition we’ll need a positive quarter or two out of the next three to ensure across the year we get positive,” he said. “But that’s the guidance we feel comfortable with.”

King said Sainsbury will continue to invest in quality and own-brand premium products. Sales of its Taste the Difference range gained almost 10 percent in the quarter.

To contact the reporter on this story: Gabi Thesing in London at gthesing@bloomberg.net

To contact the editors responsible for this story: Celeste Perri at cperri@bloomberg.net Paul Jarvis, Tom Lavell

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