British supermarket Sainsbury's warned the financial pressures building on consumers would 'only intensify' this year after it reported a 4% drop in underlying quarterly sales, driven by falling demand for general goods.
With inflation surging and customers slashing spending, Britain's second biggest supermarket said sales of grocery items fell 2.4% over the 16 weeks to June 25, while general merchandise sales of non-food goods dropped by 11.2%.
The results, described as in-line with expectations, followed a warning in June from market-leader Tesco that Britons were buying less and switching to cheaper products.
Its underlying sales fell by 1.5%, while smaller rival Morrisons reported a sales slump of 6.4%.
Simon Roberts, chief executive said Sainsbury's understood how hard it was for millions of households right now.
"The pressure on household budgets will only intensify over the remainder of the year and I am very clear that doing the right thing for our customers and colleagues will remain at the very top of our agenda," he said on Tuesday.
Consumer Confidence Plummets
Consumer confidence has plummeted as households struggle with the accelerating cost of living.
Wages are failing to keep pace with inflation that reached 9.1% in May and is heading for double digits. Food inflation is predicted to hit 15% this summer and 20% early next year, according to some forecasts.
Sainsbury's is spending £500 million over the two years to March 2023 to keep a lid on prices and encourage shoppers not to switch to German-owned discounters Aldi and Lidl.
Sainsbury's says customer perception of its value and quality is improving and it is winning market share.
But more of its sales come from general merchandise than its rivals due to its standalone Argos brand, increasing its exposure to pressure on consumers' disposable income.
Intense Competition
An interactive investor said that it faced intense competition, and noted that, "The market consensus of the shares as a hold suggests that the jury is currently out on Sainsbury’s immediate prospects, with Tesco (strong buy) being the clearly preferred play".
Sainsbury's maintained its full year pretax profit guidance of £630 million to £690 million, down from £730 million pounds in 2021-22.
The company also said its chief financial officer Kevin O'Byrne would retire in March 2023 and would be succeeded by commercial and retail finance director Blathnaid Bergin.
Read More: Britons Crack Down On Waste In 'Unprecedented' Cost Of Living Crisis, Says Sainsbury's Boss
News by Reuters, edited by Donna Ahern, Checkout. For more Retail stories, click here. Click subscribe to sign up for the Checkout print edition.
