King argues UK food volumes are likely to fall again in 2012

King argues UK food volumes are likely to fall again in 2012

Sainsbury's chief executive Justin King has predicted that food sales volumes will fall again in the UK in 2012 despite signs that commodity costs could be easing.

Commodity prices remain volatile - wheat unexpectedly spiked over Christmas, while the cost of orange juice reached a 34-year high yesterday - but analysts expect prices to come down from the levels seen in 2011, which saw food inflation rise to over 5% last year, hitting food volumes sales in the UK. Sainsbury's said food inflation was around 3% during the quarter.

Speaking to reporters today (11 January) after Sainsbury's, the UK's third-largest grocer, reported an increase in third-quarter sales, King said he expected volumes to remain under pressure this year.

"We will do our bit to bear down on any inflationary pressure but I don't think we'll see volume growth returning simply because of that," King said. "People are not going to go back to wasting food. The growth will come because people to choose to spend slightly more of their weekly budget on groceries. If they've got less pressure on fuel that will probably happen but time will tell. We think customers have probably got another year of opportunity to take a little bit of more waste out of their shopping baskets. I think there's every possibility we'll see volumes decline this year, too."

Earlier today, Sainsbury's reported what it described as a "strong" third quarter to 7 January, including its "best Christmas ever". Like-for-like sales excluding fuel increased 2.1% in the 14 weeks to 7 January. Including petrol sales, like-for-like grew 4.8%. Total sales at the UK's third-largest grocer rose 7% - or by 4.5% excluding fuel.

Sainsbury's said its like-for-like sales excluded new stores but included contributions from outlets that had been extended, which accounted for 1-1.1 percentage points of the growth. VAT accounted for 0.8-0.9 percentage points.

However, Sainsbury's brushed off suggestions that the company had performed worse than Morrisons, which reported a 0.7% increase in like-for-like sales for the six weeks to 1 January.

"Morrisons reported just for a short period [and] there was a shape to the last quarter. October and November for the industry were periods of very low growth and there was much more strength over Christmas. You can see, any way you to choose to slice the data, that our performance is the best of all the major grocers on a top line or on a like-for-like basis," King said.

Industry watchers have expressed concern that the sales gains recorded by UK food retailers - earlier this week, Morrisons reported a 0.7% increase in like-for-like sales, excluding fuel and VAT - has come at the expense of promotions amid a high level of promotions. Morrisons chief executive Dalton Philips said 43% of the products on sale in the retailer's stores were on promotion in the week before Christmas although the UK's fourth-largest retailer said its expectations for its full year remained "in line with its original assumptions".

King told just-food Sainsbury's level of promotions were "a little bit below" the industry average cited by Kantar Worldpanel of 40%.

However, finance director John Rogers said it did not see the consensus forecast for annual pre-tax profits of GBP702m changing. "You can draw your own conclusions in the context of margin," he said.

The retailer, however, refused to be drawn on whether it was putting any more pressure on suppliers to keep costs down.

"We wouldn't be doing our jobs if we weren't buying as best as we were able to," commerical director Mike Coupe said. "However, if you look at the reported results of a number of big UK plcs - or indeed overseas plcs - they seem to be getting more than their fair share of the action. Our job is to keep our suppliers honest and make sure that we pass whatever benefits we can to our customers."