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Sainsbury's points to slowing sales

J Sainsbury stoked fears of harsher times for Britain’s supermarkets with a sharp slowdown in sales, as consumers suddenly reined in their spending on groceries.

Justin King, chief executive, said there had been “quite a significant step down by consumers” since Christmas, as they grappled with a 16 per cent increase in fuel prices, increased VAT, tax rises and impending public sector job cuts.

“The change has been quite dramatic,” he said. “The surprise is just how sudden that is.”

While Sainsbury had expected January to be quiet, the subdued conditions persisted to March.

“January tends to be a period of retrenchment,” said Mr King. “But we saw [February] almost identical to January and that is unusual. Normally what you see in February is a slight tick back up in consumer activity, but we have seen that behaviour persist. And if I was a guessing man, I would say we will see it again in March.”

The comments came as Sainsbury reported a 1 per cent increase in sales from stores open at least a year, excluding fuel but including VAT, in the 10 weeks to March 19. This compares with analysts’ expectations of an increase of about 2 per cent and 3.6 per cent growth in the third quarter.

Excluding VAT and the impact of extensions to stores, like-for-like sales fell 0.8 per cent. With supermarket food price inflation running at about 2 per cent year-on-year, analysts estimated there was a decline in the volume of goods sold.

Mr King said that, on average, customers were putting one less item in their basket when they did a weekly shop. They were then purchasing this later in the week, as part of a “top-up shop” to save money by cutting food waste.

“That has happened pretty much over night post Christmas,” he said, adding: “I don’t see this customer sentiment changing for the foreseeable future.”

But Mr King said he believed Sainsbury was growing faster than rivals, raising fears for the performances of the other supermarkets.

Dave McCarthy, analyst at Evolution Securities, said the sector was caught in a “perfect storm” as the big four expanded aggressively in a slowing market.

Clive Black, analyst at Shore Capital, said: “Sainsbury has done more to confirm the magnitude of the deceleration in consumer activity in the UK than any other recent update.”

Mr Black cut his forecast for Sainsbury’s pre-tax profit in 2011-12 from £739m to £710m.

Source : Andrea Felsted - FT.com

23 March 2011
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