Justin King’s strategy of cutting prices at Sainsbury is making the chain more competitive. But new research by The Grocer shows it is fuelling deflationary pressures on prices as a whole.
Sainsbury’s prices have been slashed by 5% year-on-year since July 2004, according to The Grocer’s Price Index.
The research shows that this price cutting is one of the main reasons why overall grocery prices in the multiples are down 0.7% compared with a year ago. Strip the Sainsbury figures out of The Grocer Price Index and prices would have gone up by 0.4% in the last 12 months.
Since King - Sainsbury’s chief executive - announced his plan to make the retailer “great again” last October, the retailer has come down from a very high starting point on price to sit more in line with rivals Tesco, Morrisons and Asda.
One senior food industry analyst said that this change of focus was an inevitable step for the retailer: “If Sainsbury is to succeed with its recovery plans, it had to make sure its prices are more comparable with those at Tesco and Morrisons. It even had to make sure it was not too far out of sync with Asda.”
The Grocer’s research, carried out by ESA, reveals that this is exactly what has happened, with the cost of a basket of 100 popular grocery items at Sainsbury falling from £182.59 last July to £173.57 this month.
This compared with £167.89 at Asda, £170.29 at Tesco and a basket price of £173.82 for the same list of items at Morrisons, making Sainsbury the UK’s third cheapest supermarket.
However, Sainsbury this week insisted that its success in cutting prices had not come at the expense of quality in its product ranges.
A spokeswoman said: “We’ve been cutting prices over the past year as part of our commitment to invest £400m in our customer offer by March 2008 - an investment that also enables us to ensure that the quality of our food is outstanding.
“Our customers are noticing the improvements and we are delighted that we are fulfilling our promise to give them great quality at fair prices.”
One manufacturer said that Sainsbury had asked suppliers to “keep the faith” as it tried to lead a sales-led recovery by attracting more shoppers into its stores.
Another said that Sainsbury had asked it to permanently reduce the price of its best-selling line by 20% in November, but a sales increase had come about as a result.
“We funded that price cut, but as we are a young and rapidly growing company, we have been able to absorb it,” he explained.
He warned that production costs were a major issue and companies with less strong growth may struggle. However he said that Sainsbury’s strategy appeared to be working and he hoped that it would continue.
He said: “Let’s hope they do continue to get things right. As our biggest customer, if they grow then we will continue to grow with them.”
>>p35 The Grocer Price Index
Ronan Hegarty
How Sainsbury’s prices have fallen