Sainsbury’s gains over Tesco after price wars

SUPERMARKET rivals Sainsbury’s and Tesco go head-to-head with trading figures this week, with the former expected to have the more upbeat story to tell as price wars continue.
Justin King: Sainsburys boosted by higher end demographic. Picture: PAJustin King: Sainsburys boosted by higher end demographic. Picture: PA
Justin King: Sainsburys boosted by higher end demographic. Picture: PA

The City expects Sainsbury’s like-for-like sales in the past 16 weeks to have risen between 1.75 and 2 per cent when it reports on Wednesday, an improvement on the 0.8 per cent growth in the first quarter of its trading year.

By contrast, Tesco, Britain’s biggest supermarket group, which recently revealed it was quitting America, is expected to have either flat sales or growth of 0.5 per cent when it posts its interim results on the same day. Its Q1 same-floorspace sales also trailed Sainsbury’s, falling 1 per cent.

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Rahul Sharma, food retailing analyst at Neev Capital, said: “I think Sainsbury’s will again show it has the upper hand in this battle. They have been ahead [of Tesco] for some time on most counts.

“Sainsbury’s has been able to sell the idea of fresher food better than Tesco. And Sainsbury’s is also blessed by being exposed to a generally wealthier customer base. That helps when there is clearly a two-speed economy in the UK. By contrast, Tesco has suffered from being a lot of things to a lot of people. It has also lost some thunder in terms of its fresh and organic offer.”

Both Tesco and Sainsbury’s are expected to say the trading environment remains tough, with no let-up in price promotions among the big four supermarket groups, including Morrisons and Wal-Mart owned Asda.

“Tesco, in particular, will say promotions are at an all-time high, even if costcutting is offsetting them,” Sharma said.

Darren Shirley, supermarkets analyst at Shore Capital, agreed that Sainsbury’s was being boosted by “a higher end demographic” of customers whose spending was proving more resilient in an economic downturn.

“By comparison, Tesco serves a broader church than Sainsbury’s,” Shirley said. He said Justin King, Sainsbury’s boss, was also benefiting from his company’s higher exposure to London and the south east of England, a region seen as weathering the economic downturn relatively well.

The City believes Tesco’s sales are also likely to have been hit by its strategic decision under chief executive Philip Clarke to exit from some of its general merchandise offering, which is much bigger than Sainsbury’s.

Shirley said he did not expect aggressive price promotional activity in the sector would slow any time soon.

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“Sainsbury’s Brand Match has gained successful momentum, but it is not dissimilar from Tesco’s Price Promise. The intensity of the promotions vary from week to week, month to month. All the industry is into it heavily,” he added.

Both supermarket giants reporting this week will also say growth rates at their convenience store businesses, Sainsbury Local and Tesco Express and Tesco Metro, continue to outpace the mature big stores.