Sainsbury Resists Price War as Savings Help Stem Profit Drop

By Steve Wynne-Jones
Share this article
Sainsbury Resists Price War as Savings Help Stem Profit Drop

J Sainsbury Plc kept up a trickle of better news for the beleaguered U.K. supermarket industry as fewer price promotions helped first-half earnings beat estimates.

Underlying pretax profit fell 18 percent to 308 million pounds ($467 million), London-based Sainsbury said in a statement Wednesday, compared with the 294 million-pound median estimate of 14 analysts.

The better-than-expected profit comes only six weeks after Sainsbury surprised investors by saying full-year earnings would moderately surpass analysts’ estimates. In the face of falling grocery prices and the incursion of discounters Aldi and Lidl, the supermarket company has resisted offering more promotions, a tactic that has improved its ability to forecast and led to lower wastage.

“It’s a self-fulfilling prophecy that if you reduce promotional activity, efficiencies just keep coming through," Bryan Roberts, an analyst with Kantar Retail, said by phone. “It’s another consistent set of results and there are no signs of any panic buttons being hit."

Sainsbury shares rose as much as 2 percent to 277.9 pence in early London trading.


The grocer said it expects cost savings of 225 million pounds by the end of its fiscal year, increasing the forecast from 200 million pounds. That would mean it had achieved 45 percent of its three-year target in the first 12 months, although that goal remains unchanged at 500 million pounds.

As well as investing 150 million pounds into permanent price cuts, Sainsbury has focused on differentiating itself from its main supermarket rivals by investing in the quality of 3,000 of its own-brand products. The company said this contributed to a 1 percent increase in the number of products it sold in the first half.

“Quality differentiation works in food retail," Bruno Monteyne, an analyst with Sanford C. Bernstein, said by phone. “People at some point have to stop expecting Sainsbury’s to decline."

News by Bloomberg, edited by ESM. To subscribe to ESM: The European Supermarket Magazine, click here.

Get the week's top grocery retail news

The most important stories from European grocery retail direct to your inbox every Thursday

Processing your request...

Thanks! please check your email to confirm your subscription.

By signing up you are agreeing to our terms & conditions and privacy policy. You can unsubscribe at any time.