Sainsbury's sales growth slows as retailer slashes prices to tempt shoppers from rivals

Shares rise as results better than feared for supermarket chain

Supermarket Sainsbury's has seen a slowdown in sales growth, but insisted it has the “right strategy” in place as it pushes ahead with its £12bn Asda tie-up.

The Argos owner reported a 0.2 per cent rise in like-for-like sales for its first quarter, to 30 June, down from growth of 0.9 per cent in the previous three months.

The supermarket said grocery sales rose 0.5 per cent while general merchandise figures grew 1.7 per cent and clothing lifted 0.8 per cent, in a “very challenging market”.

While it was left nursing a slowdown in overall sales growth, Sainsbury's said sales by volume had improved, thanks to recent price cuts.

Its sales performance was also better than feared, with the group expected to reveal a sales dip in the quarter.

Group chief executive Mike Coupe said: “The headline numbers reflect the level of price reductions we have made in key areas like fresh meat, fruit and vegetables since March.

“The market remains competitive; however, we have the right strategy in place and our proposal to combine Sainsbury's and Asda will create a dynamic new player in UK retail, with the scale to give customers more of what they want today, and create a more resilient and adaptable business for the future.”

The group said it had secured a £3.5bn funding package “on attractive terms” for its mega-merger with 'Big Four' supermarket rival Asda.

Sainsbury's plans to deliver around £500m in cost savings from the deal – excluding the investment in price cuts – if the merger is approved by Britain's competition watchdog.

The Competition and Markets Authority (CMA) is in the “pre-notification” phase of its investigation, which entails gathering information before a formal inquiry can begin.

A merger between Sainsbury's and Asda, the UK's number two and three supermarkets, will create a titan bigger than Tesco, with revenues of £51bn and a network of 2,800 Sainsbury's, Asda and Argos stores.

The retailers have pledged to cut prices on everyday products by around 10 per cent after the deal.

But fears have been expressed suppliers could get squeezed as a result, with the tie-up giving the merged entity increased buying power.

Shares in Sainsbury's rose more than 1 per cent after the trading update.

Mr Coupe said the sales slowdown came as a direct result of the supermarket's price cuts, with the retailer's inflation down 1.5 per cent in the quarter, outstripping rivals.

Recent figures produced by Kantar Worldpanel showed Sainsbury's lagging behind its Big Four rivals and missing out on a boost from the barbecue weather and football World Cup optimism.

But Mr Coupe said the group's actions to cut prices on certain lines had already driven results, with sales of rump steak up 97 per cent, king prawns up 45 per cent and cherry tomatoes 25 per cent ahead.

Sainsbury's has pumped £150m into lowering prices while overhauling 51 of its ranges – 27 per cent of its grocery sales.

The group's latest figures showed first quarter online grocery sales rose 7.3 per cent while convenience stores saw a 3.6 per cent rise.

Laith Khalaf, a senior analyst at Hargreaves Lansdown, said: “We know that consumers were in fine fettle in May as the royal wedding and some good weather lifted spirits, and that's helped Sainsbury's to achieve a positive period of trading.”

He added: “Conditions remain challenging though, and while the top line is just about growing, Sainsbury's' efforts to lower prices mean that may not entirely feed through into profits.”