Sainsbury’s are engaging in all out war with the discount supermarkets to maintain their market shares in an increasingly gloomy economic environment.
Indeed, Sainsbury’s are gaining ground on the discounters, but at a significant cost to their bottom line. The price war between the supermarkets is a war of attrition with margins sacrificed at the expensive of revenue and market share.
“Sainsbury’s margins are under incredible pressure because they cannot pass on the full costs of inflation to their customers. They are also facing intense competition from discounters,” said Orwa Mohamad, analyst at Third Bridge.
Supermarkets are also fighting a war on two fronts. On one front they face price competition from other supermarkets, and on the other, rising food input prices.
The result for Sainsbury’s in the 28 weeks ended 17 September 2022 was an 8% drop in underlying profit before tax.
“With fresh food prices increasing by a scorching 13.3% over the year according to the British Retail Consortium, it’s a super-tough time to be a grocer and that’s reflected in an 8% fall in first half profit at Sainsbury’s,” said Susannah Streeter, senior investment and markets analyst, Hargreaves Lansdown.
Despite the fall in profits, Sainsbury’s update was met with a positive market reaction as shares gained over 3.5% in early trade on Thursday.
Revenue rose 4.4% in the period due to an increasing market share achieved by an ever greater number of discount lines.
“As hard-pressed shoppers shift from branded products to cheaper alternatives this should benefit Sainsbury’s thanks to the strength and depth of their own-label assortment,” said Orwa Mohamad.