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UPDATE 3-UK grocer Sainsbury's says will outperform price-cutting rivals
May 7, 2014 / 6:40 AM / 4 years ago

UPDATE 3-UK grocer Sainsbury's says will outperform price-cutting rivals

* 2013-14 underlying pretax profit 798 mln stg, up 5.3 pct

* Analysts see 2014-15 profit falling 5 pct to 762 mln stg

* UK grocery market growing at slowest rate for 11 years

* Mike Coupe to succeed Justin King as CEO in July

* Shares down 2.3 pct, reversing early gains (Adds detail, CEO, analyst comment, updates shares)

By James Davey

LONDON, May 7 (Reuters) - British grocer J Sainsbury said it was well equipped to cope with the rise of discounters and price cuts by major rivals, even though a 5.3 percent increase in annual profit represented its weakest growth in nearly a decade.

The firm said it would set itself apart with a strategy that includes focusing more than its main competitors on its own-brand products, which it says are 20 percent cheaper than their branded equivalent, and on the quality and provenance of food.

Though analysts on average expect Sainsbury’s profit to fall 5 percent in 2014-15, the supermarket chain forecast underlying sales growth similar to the 0.2 percent achieved in the 2013-14 year - far better than expectations for Tesco and Morrisons.

Britain’s grocery market is growing at its slowest rate for 11 years, as price inflation slows and stagnant wages keep consumer spending in check, monthly industry data showed on Wednesday.

The “big four” grocers - market leader Tesco, Wal-Mart’s Asda, Sainsbury’s and Morrisons - are all being outpaced by sales growth at discounters Aldi and Lidl . Upmarket chains Waitrose and Marks & Spencer are also gaining share.

British consumers are shopping around to save money and are wasting less, shying away from big weekly shops and buying little and often in local convenience stores or online.

Tesco, Asda and Morrisons have been cutting prices to try to combat the discounters, with Morrisons firing the latest salvo last week with reductions averaging 17 percent on 1,200 products.

Analysts have expressed concern about a possible contagion of price cuts hitting margins and earnings across the industry.

Sainsbury’s Chief Executive Justin King - who after 10 years at the helm will be succeeded by commercial director Mike Coupe following the annual shareholders’ meeting in July - said he was confident Sainsbury’s offering would see it outstrip its peers.

“Viewing value being purely about the single dimension of price completely misreads where the customer is,” he said.

“The conversation (on price) that’s taking place at the moment feels to us almost identical to the conversation that took place at the start of the economic downturn in 2008, where there was a presumption there will be a headlong race to the bottom and that price would be the whole story,” he said.

Sainsbury’s strategy is to deal with the issue of price with its “Brand Match” pricing scheme. As well as own-brand products - which now account for over half of sales, more than its big four rivals - and food provenance, it will focus on its Nectar loyalty card and continue to invest in online and convenience.

King highlighted Sainsbury’s commitment in areas like sourcing more products from Britain, paying a fair price to dairy farmers and selling “cage-free” eggs and sustainable tuna.

“If everybody thinks it’s all about price, the gap we’re going to be able to enjoy on the other things that are important to customers will widen,” he said.


Shares in Sainsbury‘s, down 15 percent over the last six months, rose up to 3.6 percent after the firm posted an underlying pretax profit of 798 million pounds ($1.36 billion) in the year to March 15 - ahead of analysts’ average forecast of 782 million pounds and the 756 million pounds made in 2012-13.

But they fell back after management’s meeting with analysts and publication of the monthly industry data to be down 2.25 percent at 1350 GMT.

Sainsbury’s capital expenditure was a lower-than-expected 888 million pounds in 2013-14. It guided to a similar level in 2014-15 and said capex as a percentage of sales would fall to 3 percent from 2015-16 onwards.

“While there are no silver bullets, moderating capex devoted to large stores and joining Waitrose in the race to the top could help Mike Coupe get off to a good start,” said Kantar Retail director Bryan Roberts.

Though Sainsbury’s 16.8 percent market share is its highest for a decade, its nine-year run of quarterly sales growth came to an end in its fourth quarter when like-for-like sales fell 3.1 percent. Full-year group sales rose 2.8 percent to 26.4 billion pounds.

With 2014-15 profit forecast by analysts to fall to about 762 million pounds, King denied he was getting out at the top.

“I‘m retaining a significant shareholding in the company as an indication of my confidence in the future of the company ... The business can go from strength to strength,” he said.

King was also confident that Sainsbury’s would avoid the turmoil that management change has seen at firms such as Tesco.

He said his succession had been well planned over the longer term, Coupe had been instrumental in much of Sainsbury’s success over the last 10 years and the firm’s wider leadership team was very stable and experienced.

Coupe said: “Our strategy over the last 10 years has been incredibly consistent and it will be consistent in the future.” ($1 = 0.5885 British Pounds) (Additonal reporting by Emma Thomasson; Editing by Pravin Char)

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