Sainsbury's sales fall, but less than expected - with reforms on the way

The supermarket price war, low oil prices and cheaper milk, meat, fruit and vegetables have left Sainsbury’s nursing a fifth consecutive fall in sales and admitting there would be no sign of improvement for the rest of the year.

Its chief executive, Mike Coupe, said the price falls were good news for customers but would hit the supermarket’s bottom line, as sales fell 1.9 per cent in the 10 weeks to 14 March despite the volume of food being sold actually rising.

He said: “I’ve been in this industry for 30 years and I’m longer in the tooth than most. We’ve seen food deflation before; the rise of shoppers buying little and often before; consumers tightening their spending and the rise of discounters before. But we’ve never seen them all at the same time.”

Full-year sales are expected to fall for the first time in more than a decade as a result of the current 2.5 per cent food deflation, something that has not happened since the start of Mr Coupe’s predecessor Justin King’s reign as chief executive.

Mr Coupe added: “There’s no doubt the market dynamics have altered beyond all recognition and there has been a lot of change. We are the most realistic for the market prospects and you’ve seen a resetting of the industry margins. It goes without saying the profitability of the listed grocers has suffered.”

To counter the escalating price war, Sainsbury’s has cut prices on 1,100 products, at a cost of £150m, and vowed to stop one-off promotions such as “three for £10” on meat products, instead making individual items cheaper.

The supermarket continues to bombard shoppers with money-off vouchers, such as £10 off when you spend £60 – something that rivals Morrisons, Tesco and Marks & Spencer have been offering in recent weeks.

Asda has refused to take part in this widespread vouchering and has suffered a fall in sales as a result.

Sainsbury’s said it would also be improving the quality of more than 3,000 products to differentiate itself from its rivals, especially Tesco, which has seen sales rise for the first time in two years, according to Kantar Worldpanel.

The City broadly welcomed Mr Coupe’s honesty. However some warned that Sainsbury’s could suffer more than most from continuing food price deflation.

HSBC retail analyst Dave McCarthy said: “Management were uncommitted on whether deflation will prove endemic and run into 2016 and beyond, but we believe it will… It seems to us that industry dynamics will see Sainsbury continue to lose market share, with profits and dividends under pressure.”

Others blamed Mr King, suggesting that Mr Coupe had inherited a struggling business. David Buik at Panmure Gordon said: “Poor Mike Coupe is doing his level best. However with no food inflation, fierce cost cutting and greater innovation from Lidl and Aldi and a mild renaissance from Tesco, Sainsbury is under the cosh.”