Sainsbury’s plans £150m price cuts

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Published: Wednesday 12th November 2014 by The News Editor

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Sainsbury’s is to invest £150 million in price cuts over the next year as it braces itself for several more years of challenging trading conditions.

A review of the business also found the need to improve the quality of 3,000 own-brand products, while the company said it will reduce capital expenditure and make £500 million of cost savings over the next three years.

Underlying profits for the six months to September 27 were 6.3% lower at £375 million but Sainsbury’s plunged to a £290 million loss at the bottom line after writing down the value of land it no longer intends to develop.

It also warned that its performance in the second half of the financial year is likely to be weaker than the first.

The company said: “The grocery sector is undergoing structural change as customers shop more frequently, using online, convenience and discount channels more.

“We expect supermarket like-for-like sales in the sector to be negative for the next few years, but we have robust plans to address this challenge.”

Even though the company warned that its annual dividend is likely to be lower than last year, Sainsbury’s shares held firm in early trading after the underlying profits figure beat City expectations.

The initiatives on price and products follow a wide-ranging review of the business by new chief executive Mike Coupe, who took over this summer following the departure of long-time boss Justin King.

In common with its major rivals, the retailer is responding to the supermarket price war forced on it by discounters such as Aldi and Lidl.

Mr Coupe said: “We have examined every aspect of our business and we have good foundations for future growth in our supermarket and convenience estates, our online and non-food businesses and in Sainsbury’s Bank.

“However, we need to make sure that we are investing in the right areas, and by reducing our costs and capital expenditure we are ensuring that we have the resources to enable us to do so.”

It found that a quarter of its stores have underused space and over the next five years this will be used to expand its non-food goods and also given over for in-store concession partnerships.

Tesco has a similar in-store concession deal with retailer Sports Direct in shops in central Europe and Malaysia.

Sainsbury’s said it will reduce capital expenditure to between £500 million and £550 million a year over the next three years.

This will allow eight new supermarkets but over half of its new space will be convenience stores as it continues to target opening 100 smaller sites a year.

Published: Wednesday 12th November 2014 by The News Editor

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