Sainsbury’s has vowed to continue its investment in price despite soaring food price inflation eating into first-half profits.

The UK’s second-largest supermarket revealed an 8% drop in first-half underlying pre-tax profits to £340m amid lower grocery sales.

CEO Simon Roberts said inflationary conditions were “tough for millions of households”, with customers “watching every penny and pound”. 

“Inflation is really hard for everyone right now, which is why we’ve been so focused over the last 18 months in getting our value in the right place,” he said.

The supermarket will have invested more than £500m in its pricing by March 2023 and claims it is passing on less price inflation than its grocery competitors.

Sainsbury’s own rate of price inflation was “substantially lower” than wider industry figures that saw food price inflation reach a record 11.6% this week, Roberts said, and remains “comfortably in the single digits”.

This investment has been partly funded by seeking £1.3bn in cost savings over the three years to FY23/24, in areas such as supply chain, logistics, cafés and counters, its core store operations and the transformation of its Argos business.

“It’s my job to make sure we work to reinvest every pound we can in being the most competitive we can be,” Roberts said. “The pressure is going to continue.”

The supermarket returned to quarterly retail growth, with grocery sales rising 0.2% in the 28 weeks to 17 September after stronger growth in the second quarter of 3.8% as lockdown comparatives eased and price inflation accelerated.

It suggested its mix and basket size trends were “proving more resilient than competitors’” and it said it was seeing less direct switching to Aldi and Lidl than all other full-choice supermarkets. It was the only full-choice supermarket to grow volume share versus pre-pandemic levels.

General merchandise sales were down 6.1% across H1 but up 1.2% in the second quarter, driven by improved availability and favourable summer weather.

Overall statutory group sales (excluding VAT) were up 4.4%, inflation by fuel sales growth of 39.5%.

Underlying profit before tax of £340m was down 8%, while statutory profit before tax of £376m was down 29% primarily due to higher exceptional income in the prior year from settlement of legal disputes.

Despite the first half profits dip, Sainsbury’s reiterated guidance and continues to expect full year underlying profit before tax of between £630m and £690m.

Shore Capital analyst Clive Black called the first half performance a “veritable triumph”, adding: “By design, the group’s strategy has kicked-into the key areas to deliver a robust trading performance, more so relatively, a really sound non-food out-turn that with cost savings is making this business operationally and financially stronger.”

“With tailwinds, the world could be Sainsbury’s oyster,” he added.

Sainsbury’s shares were up 5.7% to a two-month high of 209.1p on the news by Thursday lunchtime.