Sainsbury hits 12-month low after poor Christmas sales

SAINSBURY'S disappointed the stock market yet again yesterday when it revealed a poor sales performance over Christmas and admitted that its high-profile "Value to Shout About" advertising campaign, starring John Cleese, had failed to meet expectations.

Sainsbury's shares plunged by more than 8 per cent to a 12-month low of 393p as the supermarket group said underlying sales in the 19 weeks to 30 January were up by just 1.2 per cent on the same period last year. This compares to a figure of 4.1 per cent announced by Tesco last month, indicating that Sainsbury's is continuing to lose ground to the market leader.

Sainsbury's chief executive, Dino Adriano, said that although the Cleese campaign had succeeded in attracting more customers to the stores, it had not encouraged them to spend more. Instead they had focused only on the promoted, cut-price ranges, leaving Sainsbury's with a lower average transaction size.

"Shoppers were just popping in, picking up the bargains and going elsewhere," one analyst said.

The result is that not only has the price campaign failed to stimulate sales, but it has reduced margins as well.

Sainsbury's would not comment on whether it would continue to use the services of Mr Cleese. But it is considered unlikely that the comedian's contract will be renewed following suggestions that Sainsbury's has found the former Monty Python star too expensive and difficult to work with.

Sainsbury's was forced to deny rumours that it is planning a major strategic review, and suggestions that Mr Adriano is ill. "Our strategy remains unchanged, and Dino looked perfectly well last time I saw him," a spokesman said.

Analysts criticised the company, saying its management team had moved too slowly to act on prices and was still being outmanoeuvred by rivals such as Tesco, Asda and a recovering Safeway, whose trading update is due on Monday.

"This business seems no closer to solving the problem of how to grow sales in an environment of falling margins than it was five years ago," said Andrew Fowler, food retail analyst at Morgan Stanley.

Market share figures compiled by AGB show that in December Sainsbury's share of the UK grocery market was 16.1 per cent, compared to 20.2 per cent held by Tesco. Two years ago Sainsbury's was much closer, with 17.1 per cent compared to Tesco's share of 19.3 per cent.

Analysts have cut their current-year profit forecasts to around pounds 750m. Some sector watchers suggest there are parallels between the plight of Sainsbury's and that of Marks & Spencer, another dimming high-street star.

They said that Sainsbury's was paying the price for an "arrogant inward- looking attitude" that was proving difficult to shake off. "Sainsbury's just does not have a culture that learns quickly," one analyst said.

Sainsbury's has been caught out in an ever more price-competitive supermarket environment, as is illustrated by the current price war on bread, with some supermarkets cutting the cost of a sliced white loaf to just 7p.

Its trading statement showed that underlying sales at Savacentre were up by just 0.4 per cent. Homebase, the DIY chain, did better with a 4.3 per cent rise.