Sainsbury's counts cost of price wars as profits fall

Sainsbury's hit by price wars: Profits have fallen but boss Mike Coupe (pictured) said costs savings are on track

Suzanne Plunkett/Reuters

Clare Hutchison4 May 2016

Tough market conditions that triggered Sainsbury’s second consecutive decline in annual profits will continue to put it under pressure over the coming months, the supermarket has warned.

It said that although customers were buying more, it was not enough to offset the impact of falling prices. Shares fell 5%.

“The reality is we are seeing a continuation of the deflationary trend driven by a combination of exchange rates, commodity price deflation and the fact that it’s a very, very competitive market,” boss Mike Coupe (pictured) said, noting that this would “continue over the summer and beyond”.

He added that though consumers have more disposable income, they are tending to spend extra cash on items like cars and travel rather than in shops.

Sainsbury’s reported a near-14% drop in full-year underlying pre-tax profit to £587 million in the year to March 12, while sales fell by 0.9%.

The company said that the continued expansion of the discount retailers, such as Aldi and Lidl, offering a limited number of products at low prices, “has forced the established grocery retailers to cut their prices and tailor their offer”.

The update comes after Sainsbury’s last month agreed a takeover of Argos-owner Home Retail Group.