Sainsbury’s takes a hit from continued food price deflation

Sainsbury’s has weathered a fall in profits for the year to 12 March as the supermarket battles to maintain profits in the face of continued food price deflation.

Underlying profits sank from £681m the previous year to £587m this year – although pre-tax profits leaped from minus £72m last year to £548m owing to the one off effect off a write down in the value of the retailer’s properties.

Chief executive Mike Coupe said: “Prices are actually 4 per cent lower, would you believe, than two years ago and that's a reflection of the fact that the market is fiercely competitive - and it will remain so for the foreseeable future."

Sainsbury’s in common with big four rivals Tesco, Asda and Morrison’s, has been engaged in a bitter price war in order to compete with budget chains Aldi and Lidl.

John Ibbotson, director of the retail consultancy, Retail Vision, remarked: “The bill for Sainsbury’s campaign to keep competitive has finally fallen due.

“The best of the Big Four has paid an eyewateringly high price to keep market share. Its modest increase in retail sales has come at the cost of slashed profit margins.

“In reality the brand had little choice but to shift to a medium-low pricing strategy. With the UK’s other grocery titans competing ruthlessly on price in response to the threat from the German discounters, Sainsbury’s had to cut prices or risk being dangerously out of step.”

In an effort to further diversify its retail offer Sainsbury’s has also agreed to purchase the Home Retail Group, owner of brands including Argos.

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