By Karen Peattie

THE UK’s second-biggest supermarket, Sainsbury’s, has witnessed increased demand for own-label products as it pointed to life being tough for “millions of households” and unveiled an 8 per cent dip in first-half profits as it absorbed some of the impact of rising food costs and increased staff wages.

Sainsbury’s, the owner of Argos, posted an improved second quarter sales performance but profits were hit by investment in price amid soaring inflation. Underlying pre-tax profits were better than expected, falling to £340 million while sales rose 4.4% to £16.4 billion in the six months to September.

Grocery sales increased 3.8% in the second quarter compared with the same period a year ago while sales at Argos rose 1.6%, compared with a 10.5% decline in the first quarter.

One of the “big four” supermarkets, which also includes Tesco, Morrisons and Asda, Sainsbury’s has attempted to counter the challenge from discounter brands Aldi and Lidl.

Simon Roberts, chief executive of J Sainsbury plc, said the group had grown its market share in both grocery and general merchandise. “Two years ago, we launched our plan to put food back at the heart of Sainsbury’s,” he said. “We committed to improve shareholder returns by creating a simpler business and reducing costs to invest in lower prices, food innovation, and maintaining colleague and customer satisfaction.”

Mr Roberts added: “We really get how tough it is for millions of households right now. Customers are watching every penny and every pound and we know that they are relying on us to keep food prices as low as we can.

“We will have invested more than £500m by March 2023 in keeping prices lower by cutting our costs at a faster rate than our competitors, meaning we have more firepower to battle inflation.”
Profits, he noted, “are significantly higher than pre-Covid levels andare generating strong cash flow, supporting debt reduction and dividend payments”.

“Over the past year-and-a-half we have consistently passed on less price inflation than our competitors and I am confident we have never been better value,” Mr Roberts added. “Argos is also performing well in a market where customers are looking for reassurance that they are getting great value and availability.”

Last week, the Office for National Statistics (ONS) revealed that some of the cheapest food in supermarkets had risen by nearly two-thirds in the last year, heaping extra pressure on struggling households.

It said the cost of the lowest-priced vegetable oil had spiked 65% while the cheapest pasta was now 60% more expensive than a year ago. The price of the cheapest tea had risen by 46%, chips were up 39%, bread rose by 38% and biscuits were up 34%.

Mr Roberts noted that the cost-of-living crisis had prompted a “growing trend” of people eating at home instead of going out, adding that customers were also buying Christmas goods now to spread out the cost.

Zoe Gillespie, investment manager at RBC Brewin Dolphin, said that Sainsbury’s, much like its peers in the UK grocery market, was “stuck between a rock and a hard place with tough comparators during the Covid-19 pandemic, increasing labour costs, and the impact of high inflation”.

She noted: “Sales have remained robust, but the effects of the macro-economic situation are beginning to filter through into profitability, with an 8% fall in first-half profits. That said, cash flow remains strong and Sainsbury’s has been taking a range of self-help measures – including investing in lower prices for customers – to navigate its way through a tricky environment.

“It is a tough time for supermarkets but Sainsbury’s is taking some good steps in the right direction and is well placed for the key Christmas period.”