Mar 17, 2015
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UK Sainsbury's says to outperform rivals in tough market

Mar 17, 2015

Britain's Sainsbury's expressed confidence in outperforming its supermarket peers and played down the threat posed by recovering rival Tesco on Tuesday, although it said no quick improvement in tough trading conditions was expected.

Sainsbury's in common with rivals Tesco, Asda and Morrisons, is grappling with food price deflation and an intensifying price war launched to counter discounters Aldi and Lidl.

They are also having to adapt as consumers shop more frequently, buy more online and shop locally rather than at out-of-town stores.

Sainsbury's posted a fifth consecutive quarter of declining underlying sales but it said measures laid out in November's strategic update were working, enabling it to combat the discounters' threat and Tesco, whose turnaround under new boss Dave Lewis appears to be gathering pace.

Shares in Sainsbury's, down 14 percent over the last year, were up 1.3 percent at 272 pence at 0952 GMT. Tesco shares were down 0.9 percent.

Sainsbury's is cutting costs, dividends and new store openings to fund an extra 150 million pounds ($222 million) in lower prices. It is also investing in improving the quality of its products and expanding its non-food, online and convenience business.

"I've competed with Tesco my entire career. The important thing for us is to focus on doing what we do," CEO Mike Coupe told reporters.

"We're confident in the plan that we set out to execute. And the stuff that we've done so far seems to be pointing in the right direction."

He noted that where the firm has cut prices it has seen average volume growth of more than 3 percent. Sales at convenience stores were up 14 percent, while online grocery order numbers and sales were up 14 percent and 6 percent, respectively.

However, some analysts remain unconvinced.

"It feels to us that it could be particularly negatively impacted by a sustained better out-turn from Tesco UK, making Coupe's assertion that Sainsbury will outperform its peers all the more interesting," said Shore Capital analyst Clive Black.

Sainsbury's sales at stores open more than a year fell 1.9 percent, excluding fuel, in the 10 weeks to March 14, its fiscal fourth quarter. That was in line with company guidance and follows a third-quarter fall of 1.7 percent.

"We expect the market to remain challenging for the foreseeable future. Food deflation is likely to persist for the rest of this calendar year, and competitive pressures on price will continue," Coupe said.

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