Update: Sainsbury’s posts £290m first half loss after property write-down

Sainsbury's is to invest �150million in price cuts over the next year amid growing competition from

Sainsbury's is to invest �150million in price cuts over the next year amid growing competition from discounters such as Aldi and Lidl. - Credit: PA

Sainsbury’s has scaled back plans for new stores after warning that the squeeze on the supermarket industry will last another few years.

The chain is mothballing a number of schemes in its property pipeline and plans to reduce the amount of money spent on new space over the next three years as it concentrates on the fight against discount rivals.

The cost of writing down the value of existing stores and those sites which will no longer be developed meant the supermarket giant plunged to a loss of £290million in the six months to September 27.

Underlying profits were better than expected at £375m but this was still 6.3% lower than a year earlier as the company warned that its annual dividend payment to shareholders may have to be cut.

Shares plunged 5% today and have fallen by 38% in the last year after the company warned that its profitability will deteriorate in the current half year period.

Mike Coupe, the company’s former commercial director who took over from Justin King as chief executive in the summer, said the industry was facing a once-in-a-generation combination of cyclical and structural change as customers use online, convenience and discount channels more often.

The company said: “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.”

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Unveiling a strategy review, Mr Coupe plans to invest £150m in price cuts over the next year and improve the quality of 3,000 own-brand products.

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

Sainsbury’s will look for cost savings of £500m over the next three years and will reduce annual capital expenditure to as low as £500m over the next three years, compared with around £950ma year since 2012/13.

In the current financial year, the chain expects to deliver around 750,000 sq ft of new space, with around two new convenience store openings per week.

This will reduce to 500,000 sq ft of space in each of the next two years, followed by 350,000 sq ft in 2017-18, resulting in just eight new supermarkets over that period.

Over half of its new space will be convenience stores as the company continues to target opening 100 smaller stores per year. The estate currently comprises 594 supermarkets and 660 convenience stores.

Today’s results show that like-for-like sales, stripping out changes in store space, were 2.1% lower due to price deflation in many food categories and as more frequent, convenient shopping resulted in smaller basket sizes.

The convenience business grew sales by 17% to over £1billion, while the sale of groceries online grew by around 9% year-on-year.

Retail operating profits decreased by 11.8% to £388m as a result of lower like-for-like sales and investment in the customer offer, particularly in staple products, in order to remain price competitive.

Mr Coupe said the company had examined every aspect of its business. He added: “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.

“We will continue to differentiate ourselves from a position of strength by offering great products and services at fair prices, investing in the quality of our food and investing in price in areas where our customers tell us it matters most.”