Britain's third-largest supermarket, J Sainsbury, appears to be one of the winners of the Christmas grocery battle after attracting shoppers to its own-brand products.
Britain's third-largest supermarket, J Sainsbury, appears to be one of the winners of the Christmas grocery battle after attracting shoppers to its own-brand products, but fears remain that it is relying on price cuts going into an even more competitive new year.
The company reported a 4.5% rise in like-for-like sales excluding fuel for the 13 weeks to January 3, ahead of consensus expectations of 3.7%.
In a much less detailed trading update, Wal-Mart-owned Asda, the second-largest UK supermarket, claimed "one of the company's strongest Christmas sales seasons".
Asda and Sainsbury both had record sales days on December 23 as customers left their festive shopping late, with Sainsbury taking in £140m through its tills on that day. This helped it improve on the sales growth of 4.3% it saw in the previous quarter. Over that time, inflation for the business eased from 5% to 3%, suggesting that it has gained sales volumes.
Analysts saw this as encouraging but there are also worries that Sainsbury, which has traditionally been seen as the higher-priced of the four main supermarkets, has driven sales by increasing promotional activity. More than 30% of sales are discounted compared to around 20% earlier in the year.
Sainsbury's chief executive Justin King said there had been a move towards own-brand products, with its Basics range up 40% year-on-year, albeit to just 3% of sales, while its standard own-label range, which amounts to 40% of purchases, also grew faster than the headline rate.
King said: "People are buying Basics to save money directly and also as a cooking ingredient, and it is cooking rather than buying prepared food which is saving them money."
He said that another 50 lines would be added to the 600-strong Basics range over the coming weeks.
Sales from Sainsbury's food-only online business, which is to gain non-food items this summer, grew 27%. This added about 0.5% to the company's like-for-like growth.
But despite the strong figures, Sainsbury shares struggled to gain ground during the day before a late surge helped them up 6p, or 1.9%, to 328.75p. Investors have long anticipated a strong festive period for Sainsbury's and they are now looking beyond companies such as food retailers that can sustain demand during a recession, to those, such as clothing retailers, that will prosper afterwards.
Some analysts, such as Panmure Gordon's Philip Dorgan, were positively bearish, warning that "Sainsbury's low margins leave it vulnerable to a sales downturn" and predicting that a 5% fall in sales would wipe 30% off profits.
King said this year will be as difficult for the company as 2008 was.
"We think it is going to be an equally challenging consumer environment in 2009. Quite clearly we are going to see significant job losses."
He said this would knock the confidence of those remaining at work, as well as curbing the spending power of those who are jobless.
King yesterday acknowledged that the company was engaging in a new year price war with rivals.
"There is a January price war, there is always a price war in January," he said.
Yesterday, some evidence emerged that Sainsbury'has not been as successful as it claimed. Market researcher Nielsen claimed that Wm Morrison Supermarkets, the smallest of the big four, saw strongest growth with sales up 8.9% in the four weeks to December 27. It said Sainsbury had the weakest growth of the quartet at 3.8% over the period.
Nevertheless Sainsbury's is maintaining its growth plans. Despite Marks & Spencer announcing it expected to shed 1200 roles from its business, King said that Sainsbury was recruiting people. It took on 20,000 casuals over the festive season instead of the expected 12,000 and has retained some 3000. The company expects to take on another 2000 or so people this year.
But King dismissed the impact of the government's temporary cut in VAT to 15%. Many of Sainsbury's food items do not have VAT on them.
"I would have preferred it was spent on something that is useful for job creation and credit."
King said Sainsbury was likely to pick up "a small handful" of sites from now-defunct retailer Woolworths but said most stores were either too large for convenience stores or too small for a full-size supermarket.
Asda also reported a "solid Christmas trading performance", with sales of its top-end Extra Special range up by over 50% year on year.
Chief executive Andy Bond said: "2008 has been one of our best years and we have rounded it off in style with Christmas sales ahead of our expectations."
But parent company Wal-Mart downgraded its earnings forecast and said sales were below expectations.
