The financial pressures facing consumers will only get worse this year, J Sainsbury warned, after it posted a 4 per cent drop in quarterly sales.
Britain's second largest supermarket chain said that sales of grocery items fell by 2.4 per cent over the 16 weeks to June 25, while general merchandise sales of non-food goods fell by 11.2 per cent amid fragile consumer confidence and rising inflation.
Simon Roberts, the chief executive, said that customers were watching every penny and every pound, and that we are seeing some switching into economy own-label brands. He said customers were cutting back on big-ticket items, such as technology and furniture, at its chain Argos.
Inflation was 9.1 per cent in May, but the wages are not keeping pace with it. According to some forecasts, food inflation is predicted to hit 15 per cent this summer.
Sainsbury s first-quarter trading performance was more resilient than expected in the city, with the 4 per cent like-for-like decline less than the 5.4 per cent consensus forecast by analysts and after a 5.6 per cent decline in the fourth quarter of Sainsbury s last financial year. In the quarter, sales of petrol and diesel were up by 2.9 per cent, as a result of the surge in petrol and diesel prices.
Supermarkets have been accused of profiting from soaring fuel prices, including by Justin King, a former chief executive of Sainsbury's.
Roberts, 51, said that Sainsbury s was watching this issue very closely, but that its fuel pricing remained competitive. Grocery sales were supported by the Platinum Jubilee celebrations and Sainsbury s convenience stores. Sales of beer, wines and spirits were the highest outside of Christmas and Easter during the jubilee week. Roberts said the grocer had outperformed the market at key events such as the jubilee, as customers look to Sainsbury s when they want to treat themselves, particularly at special occasions. Sainsbury s reiterated its full-year financial forecast of between 630 million and 690 million, which would be a decline from the previous year's 730 million.
The stock was down by almost a quarter this year, but the update lifted shares in Sainsbury s by 1.2 per cent on the London Stock Exchange. The shares closed up 2 p, or 1.1 per cent, at 210 p.
The retailer is more exposed than other supermarket chains to general merchandise sales, a part of the market particularly under pressure from falling disposable incomes because of its Argos outlets. Sainsbury s said that the sales trend for general merchandise and clothing improved after the first five week period last year when non-essential retail was closed during lock-in.
The supermarket sales rose by 8.7 per cent compared to before the crisis, and showed a year-on-year fall in grocery sales. Sainsbury s volume market share performance has risen since before the epidemic, according to Sainsbury s.
Sainsbury s is spending 500 million over the two years to March to keep prices low, especially on products that customers buy most often, and as it seeks to dissuade shoppers from switching to Aldi and Lidl, the German-owned discounters. Sainsbury s is price-matching Aldi on 240 products, including meat, fish and poultry and dairy.
Analysts at Bernstein said that despite Sainsbury s continuing to under-inflate the market by not passing on all inflation, it still falls by 1.5 per cent and holding back inflation will put pressure on margins.