Supermarket Price War Looms as Sainsbury’s Joins Fight
Sainsbury’s has forecast that shop profits will flatline or fall in the coming year as the supermarket sector prepares for a possible price war. The retailer said it expects income to dip to £1bn as it continues to invest in lowering grocery prices.
Last week, Tesco admitted that it could take a significant hit if it is forced to cut prices after Asda – now under the leadership of industry veteran Allan Leighton – announced it would reduce grocery costs to boost the struggling store.
A race to lower prices could help households who are still struggling with the cost of living at a time when bills, such as energy and water, are increasing.
Sainsbury’s chief executive Simon Roberts said: “We’re in the strongest position we’ve ever been [on price competition] and we intend to stay there.”
Sainsbury’s expects the impact of lowering prices to be relatively small. It predicts underlying retail profit will tick down by around £36m over the year.
This is far below the potential £400m hit announced by Tesco.
The BBC news services is reporting that Sainsbury’s set out its expectations as it revealed that full-year sales rose by 3.1% to £31.5bn. Pre-tax profit jumped from £277m to £384m.
While revenue at Sainsbury’s grew strongly over the 12 months to 1 March, sales continued to fall at Argos although it said that the situation improved as it boosted traffic to the brand’s website.
The supermarket also reported an 8.9% drop in fuel sales to £4.7bn. It blamed “reduced demand” as well as the lower cost of petrol and diesel due to “falling commodity prices in a highly competitive market”.
Official data released on Wednesday showed that the falling cost of motor fuel helped drive down the overall rate of inflation.
Inflation eased by more than expected to 2.6% in the year to March, from 2.8% in February.