March of the discounters: Sainsbury's share price rises as it promises £150m price cuts

Emma Haslett
Follow Emma
The supermarket said its sector is undergoing "structural change" (Source: Getty)

Newly-installed Sainsbury's chief executive Mike Coupe has taken the bull by the horns, promising a £150m "investment" in price cuts in order to compete with increasingly powerful discounters such as Aldi and Lidl.

Investors were clearly impressed: shares rose four per cent as the market opened.

The supermarket posted results showing its worst first-half performance in more than a decade, with pre-tax profits collapsing from £433m this time last year to a £290m loss this year.

The rest of the company's first-half results looked similarly bleak: like-for-like sales down 2.1 per cent, underlying group sales down 0.3 per cent to £13.9bn, basic loss per share of 18p, up from last year's 17.9p per share earnings - although the supermarket maintained its interim dividend at 5p per share.

However, it warned it expected like-for-likes to fall "over the next few years".

As with its peers, Sainsbury's blamed its woes on "structural change" in the grocery sector.

Customers shop more frequently, using online, convenience and discount channels more.

The supermarket launched the first of its new tie-ins with Danish discounter Netto last week: it said if the trial goes well, it will open 15 new stores by the end of next, which "will give us access to the growing discount grocery channel".

However, having reviewed its property estate, Sainsbury's added it has taken an "onerous" charge of £628m on properties that are "unlikely to achieve an appropriate return on capital", and as a consequence will cut the amount of new space it opens in the coming three years.

Over the next five years, around 25 per cent of our estate, although well located, will have some under-utilised space given the projected food and grocery volume declines.

Coupe said Sainsbury's had "good foundations" for future growth. "However, we need to make sure that we are investing in the right areas and by reducing our costs and capital expenditure we are ensuring that we have the resources to enable us to do so."

Sainsbury's is a great business. Our consistent outperformance of our main supermarket peers over the past five years is evidence of this. We are facing into a once-in-a-generation combination of cyclical and structural change in the industry, but I firmly believe that this strategy, building on our unique heritage and track record of success and delivered by the most experienced management team in retail, will focus and energise our business to the benefit of customers, colleagues and shareholders alike.
However, analysts weren't convinced. Phil Dorrell, director of retail consultancy Retail Remedy, said the results were "marginally less awful than Tesco's".
For Sainsbury’s to blithely describe a £290million annual loss as ‘relative outperformance’ shows just what dire straits the supermarket giants face.
But at least they will have come as little surprise to the already battle-hardened Mike Coupe. He inherited the crown as the brand’s sales and profits were on the turn, and so far he has provided mitigation if not miracles.

Related articles