Sainsbury’s has said it is winning back sales from Aldi and Lidl for the first time, after a slowdown in food inflation helped it increase the amount of items sold across the business.
The supermarket said it was on track to deliver full-year profits at the upper end of expectations – however, pre-tax profits dived by 27% to £275m in the six months to 16 September as sales of clothing and general merchandise, including at the group’s Argos chain, slumped over the summer.
The company, which includes Habitat homewares as well as Argos and its supermarkets, said the fall in profits largely reflected one-off benefits in previous year including a legal settlement, and that underlying profit was flat year on year – slightly better than the City had expected.
Total sales at the group rose by 3.5% to £16.9bn. The retailer said it had signed up an extra 3 million members to its Nectar loyalty card scheme, having invested £118m to keep prices down since March.
Grocery sales rose by 8.9% in the three months to 16 September – a slowdown from 11% in the previous quarter, which Sainsbury’s said was the result of falling food inflation and it had sold more goods.
Simon Roberts, the chief executive, said the supermarket had made record market share gains, adding: “We are winning share from every competitor and have real momentum going into the all-important [Christmas] trading period … Food inflation is consistently coming down which is clearly reflected in the sales.”
He said industry data showed it was the first time the retailer had gained share from the “limited choice supermarkets”, a reference to the German discounters Aldi and Lidl, claiming “customers are voting with their feet, coming to Sainsbury’s more often and buying bigger baskets”.
Sainsbury’s continued to sell more goods than a year before as it passed on savings to customers, Roberts said. He added that the supermarket was increasing prices by about half the headline rate of inflation – which now stands at just over 6%, or almost 10% in food – and was further holding back prices on the key 300 products which most people buy every week.
He said the price of items such as cheese, pasta and fish fingers was coming down but there were still “a lot of inflationary pressures in the industry around that were not going to go away”, including labour costs and energy, while some food commodities continue to increase in price.
Sales of general merchandise at the group went into reverse over the summer amid poor weather – dropping by 2.6% in the second quarter compared with 4% growth in the first three months.
Profit margins were hit at the Argos chain as sales of more profitable barbecues, garden furniture and paddling pools slumped compared with last year’s hot summer. Shoppers bought more of its less-profitable gaming consoles and other electronics.
Clothing was the hardest hit by the cold and wet July and August, with sales down by nearly 15% over the second quarter when Roberts said the supermarket had not joined in with widespread discounting.
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Profits rose in its grocery business as Sainsbury’s sold more items and made cost-savings, offsetting higher operating costs and price cuts.
Roberts said: “We’ve never been more competitive on price and our focus on value, innovation and service is giving more customers more reasons to shop with us.”
He added that it was too early to tell what impact the rise of anti-obesity drugs may have on the food industry but the company would “continue to watch the issue very carefully”.
He said Sainbury’s now expected to make annual profits of between £670m and £700m – the upper end of its previous guidance of £640m to £700m. It also expects to generate £100m more cash than the £500m previously indicated.
