Sainsbury’s has forecast flat profits for the coming year as Britain’s intensifying supermarket price war and rising operating costs look set to squeeze margins, despite the company gaining market share.
The UK’s second-largest supermarket chain reported a solid set of annual results for the year to March, with retail sales excluding fuel rising by 4.2% to £26.6 billion. The retailer said it benefited from increased customer demand as shoppers sought value during the cost-of-living crisis, helping to grow its share of the UK grocery market.
Retail underlying operating profit for the year rose 7.2% to £1.03 billion, reflecting strong performance in core grocery operations and continued investment in customer value. However, Sainsbury’s warned shareholders that profits for the new financial year were expected to be flat, at around £1 billion, as the gains from stronger volumes are likely to be offset by ongoing pressures on profitability.
Chief executive Simon Roberts said the company had made “a winning combination of value, quality and service that customers love,” citing a £1 billion investment in price reductions over recent years. “Our belief in the strength of Sainsbury’s offer has driven our decision to make our largest investment in expanding our store space in over a decade,” he added.
The company plans to open approximately 40 new stores in the coming year, including a mix of full-sized supermarkets and convenience outlets, while also extending food space in a number of existing sites.
Grocery sales were up 4.5% year-on-year, underlining the effectiveness of Sainsbury’s focus on fresh food and competitive pricing. Meanwhile, the group’s general merchandise division, Argos, saw a 2.7% fall in sales to £4.9 billion. Despite this dip, the retailer said Argos returned to growth in the final quarter, contributing to positive momentum going into the new financial year.
The outlook comes amid increasingly fierce competition among UK grocers. Earlier this month, Tesco, the UK’s largest supermarket, said it expected weaker profits as it committed more resources to further price cuts. Meanwhile, Asda has made it clear that it will intensify its own pricing efforts under the return of chairman Allan Leighton, who has vowed to reclaim lost ground in the market.
Sainsbury’s has faced growing pressure from discount rivals such as Aldi and Lidl, whose aggressive pricing continues to win over cost-conscious shoppers. Industry analysts suggest that while the major supermarkets have made strides in closing the gap on pricing, it remains difficult to match the discounters’ low-cost operating models.
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Commenting on the competitive landscape, Roberts noted: “Customers continue to tell us they want consistently great value and we’re committed to delivering just that — without compromising on quality or service. We’ve shown we can grow volumes and attract new shoppers, but we must stay disciplined in managing our cost base.”
He added that inflationary pressures, including wage growth, energy bills, and supply chain costs, would remain headwinds in the year ahead.
Investors reacted cautiously to the news, with shares in Sainsbury’s dipping slightly in early morning trading. However, market watchers largely praised the company’s strategy, noting that its investment in store expansion signals long-term confidence in the brand.
With the UK grocery sector entering what analysts have dubbed a “new era of everyday low prices,” supermarkets like Sainsbury’s will need to carefully balance competitive pricing with operational efficiency. Whether the strategy will deliver sustainable growth in the face of ongoing economic uncertainty remains to be seen.
