Sainsbury Sales Resume Decline on U.K. Grocer’s Price Cuts

  • Retailer reduced prices of items such as chicken and eggs
  • CFO says consensus for profit is 11% lower than Bloomberg’s

J Sainsbury Plc sales resumed their decline after one quarter of respite as the U.K. grocer cut prices permanently to stem a loss of customers to cheaper competitors.

Same-store sales fell 0.8 percent, excluding fuel, in the 12 weeks ended June 4, London-based Sainsbury said Wednesday. That compared with the median estimate of 14 analysts for a 1.7 percent decline. Chief Financial Officer John Rogers also said the analyst consensus is for full-year pretax profit of 520 million pounds in a company survey, short of the 585 million-pound consensus of analysts on Bloomberg.

To combat the growth of discounters Aldi and Lidl, Sainsbury and its main competitors have simplified pricing, phasing out complex promotions and replacing them with lower prices on everyday products such as chicken, eggs and cheese. All the U.K.’s mainstream grocers are suffering at the hands of the budget chains, which continue to win customers with their low prices and increased store numbers.

For a quick wrap of analyst commentary on Sainsbury today, click here.

“Market conditions remain challenging,” Sainsbury Chief Executive Officer Mike Coupe said in the statement. “Food price deflation continues to impact our sales and pressures on pricing mean the market will remain competitive for the foreseeable future.”

Sainsbury shares traded 0.8 percent higher at 248.60 pence at 11:18 a.m. in London after rising as much as 3 percent in early trading. CFO Rogers declined to comment on the profit consensus, except to say the top estimate in its survey was 585 million pounds.

Sainsbury said the proportion of customers participating in promotional offers reduced further in the quarter to 23 percent from 30 percent a year ago. The grocer plans to phase out the vast majority of offers such as “buy-one-get-one-free” by August. Already this year it ended its Brand Match program after almost five years of pledging to be no more expensive than its main competitors.

“Everyone was expecting that getting rid of multi-buy offers would mean their sales would fall,” Charles Allen, an analyst at Bloomberg Intelligence, said by phone. “But it seems they got more customers through the door because they liked the simplicity of the pricing.

Sainsbury’s recent permanent price cuts included a 1.35-kilogram whole chicken to 2.95 pounds from 3.50 pounds, 12 free-range eggs to 1.75 pounds from 2 pounds, and a 250-gram pack of grated Cheddar cheese to 1.75 pounds from 2 pounds.

The grocer may face a new challenge after Wal-Mart Stores Inc.’s international CEO David Cheesewright pledged this week to cut prices further at the retailer’s Asda chain. Coupe pledged to “maintain our price position” in the event of a further round of discounting.

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