Sainsbury's revenue growth slows after price cuts

Sainsbury’s revenue growth slowed in the first quarter as the supermarket chain cut prices to sell more items to customers.

Sales, excluding fuel, at stores open a year or more rose 0.2% in the 16 weeks to 30 June compared with 0.9% growth in the preceding quarter.

Total grocery sales rose 0.5% compared with 2.1% the previous quarter and sales of total sales across all products except fuel slowed to 0.8% from 1.3%. Sales of general merchandise, which includes Sainsbury's acquisition of Argos in 2016 rose 1.7% – the division's first increase for a year.

Sainsbury’s said price cuts of groceries had boosted the number of goods sold to customers in a competitive market, though the company did not give numbers.

Mike Coupe, Sainsbury’s chief executive, said: “I am pleased with our progress in the quarter. The headline numbers reflect the level of price reductions we have made in key areas like fresh meat, fruit and vegetables since March.

“Our price position has improved and customers have responded well, resulting in a continuation of the improved volume trend we saw in the second half of last financial year.”

Sainsbury’s has made £150m of price reductions on everyday food items as it battles for customers with German discounters Aldi and Lidl and UK rivals Tesco and Morrisons, which are undergoing revivals.

Faced with fierce competition and squeezed household spending Sainsbury’s has agreed to buy Asda from Walmart for £7.3bn to roughly double in size and cut costs. The takeover faces obstacles including a competition inquiry and opposition from politicians and campaigners but Sainsbury's has £3.5bn of deal financing in place on what it said were attractive terms.

Coupe said: “The market remains competitive. However, we have the right strategy in place and our proposal to combine Sainsbury's and Asda will create a dynamic new player in UK retail, with the scale to give customers more of what they want today and create a more resilient and adaptable business for the future.”

Sainsbury's shares rose 1% to 321.7p at 08:38 BST.

Darren Shirley, an analyst at Shore Capital, said the mixed trading update made little difference to Sainsbury's attraction as an investment, which is "fossilised" while uncertainty hangs over the Asda deal.

"We view the grocery performance as pretty underwhelming, though we are encouraged to see general merchandise outperform," Shirley said. "Whilst we increasingly concerned with Sainsbury’s ongoing underperformance in the core grocery arena … we do concede that the positive momentum in GM has exceeded expectations."