Cost of living pressure to intensify, Sainsbury’s warns as its sales drop 4 per cent

A employee walks inside a Sainsbury's supermarket in Richmond, west London, Britain, June 27, 2022. REUTERS/Henry Nicholls/File Photo

Sainsbury’s warns cost of living pressure to intensify as its sales drop 4 per cent

Sainsbury’s warned the financial pressures building on consumers would “only intensify” this year after it reported a 4 per cent drop in underlying quarterly sales, driven by falling demand for general goods.

With inflation surging and customers slashing spending, Britain’s second biggest supermarket said sales of grocery items fell 2.4 per cent over the 16 weeks to June 25, while general merchandise sales of non-food goods dropped by 11.2 per cent.

The results, described as in-line with expectations, followed a warning in June from market-leader Tesco that Britons were buying less and switching to cheaper products. Its underlying sales fell by 1.5 per cent, while smaller rival Morrisons reported a sales slump of 6.4 per cent.

Chief Executive Simon Roberts said Sainsbury’s understood how hard it was for millions of households right now.

“The pressure on household budgets will only intensify over the remainder of the year and I am very clear that doing the right thing for our customers and colleagues will remain at the very top of our agenda,” he said on Tuesday.

Consumer confidence has plummeted as households struggle with the accelerating cost of living.

Wages are failing to keep pace with inflation that reached 9.1 per cent in May and is heading for double digits. Food inflation is predicted to hit 15 per cent this summer and 20 per cent early next year, according to some forecasts.

Roberts added that some shoppers were switching to its economy own-brand products in response to a squeeze on living standards, but they were also trading up to premium ranges for special occasions.

“We are seeing some switching into economy own-label, clearly as we expected, and that’s the reason why Sainsbury’s quality Aldi-price match is playing such an important role,” Roberts said. “We are also seeing at the same time premium sales remaining resilient.”

Sainsbury’s is spending £500 million over the two years to March 2023 to keep a lid on prices and encourage shoppers not to switch to German-owned discounters Aldi and Lidl.

Sainsbury’s says customer perception of its value and quality is improving and it is winning market share.

But more of its sales come from general merchandise than its rivals due to its standalone Argos brand, increasing its exposure to pressure on consumers’ disposable income.

Interactive investor said it faced intense competition: “The market consensus of the shares as a hold suggests that the jury is currently out on Sainsbury’s immediate prospects, with Tesco (strong buy) being the clearly preferred play”.

Sainsbury’s maintained its full year pretax profit guidance of £630m to £690m, down from £730m in 2021-22.

The company also said its chief financial officer Kevin O’Byrne would retire in March 2023 and would be succeeded by commercial and retail finance director Blathnaid Bergin.