King confident Sainsburys can compete with Tesco

King confident Sainsbury's can compete with Tesco

Sainsbury's chief executive Justin King has expressed confidence that the retailer can compete with Tesco despite its larger rival's move to revamp its promotional strategy.

Two weeks ago, Tesco unveiled its "Big Price Drop", an overhaul of its price and promotional programme that it claimed would lead to GBP500m (US$765) of price cuts.

One change has seen Tesco decide to move from offering two points from its Clubcard loyalty scheme for every GBP1 spent to one.

Sainsbury's immediately claimed the Clubcard move would save Tesco GBP350m and represented Tesco "giving with one hand and taking with the other".

Speaking to reporters yesterday (5 October), King said much of Tesco's new strategy had been seen before. "What Tesco announced was a pull-out from Clubcard 2. That was the big news in the announcement of a couple of weeks ago. Everything else they talked about I see as being part of the cut and thrust of pricing and promotions in this marketplace," King said. "They made a very similar pricing announcement at the start of their financial year six months ago. We can look on the last six months as being quite clearly a period when we've outperformed them. There's nothing new in what they've announced that would cause us to do something different."

A month before Tesco announced its Big Price Drop, Sainsbury's started to trial "Brand Match", a programme that it claimed would give shoppers the most competitive prices on branded goods. The trial was launched in 12 stores in Northern Ireland and compared the price of a basket of brands on sale at Sainsbury's and at Tesco and Asda. Sainsbury's promised to refund the difference if the basket was cheaper was either of its two rivals.

King said Sainsbury's preferred to "keep its counsel" on the early results of Brand Match trial but did indicate that the retailer had seen some success even in the wake of Tesco's new strategy. "We've been able to see how our pricing relative to Tesco changed last week. What we saw is that actually last week we won more baskets against Tesco than the week before."

The Sainsbury's chief, however, was cautious about whether the retailer would roll out the initiative into more stores. "As and when we think we understand that properly and how it works for customers, that's another tool that we might use, but that's not for now."

King was speaking after Sainsbury's reported its second-quarter and half-year sales. Like-for-like sales increased in both the second quarter and the first six months of Sainsbury's financial year but some in the City questioned the performance of the retailer's underlying business. Matthew Truman, analyst at J.P. Morgan Cazenove, claimed second-quarter like-for-like sales from Sainsbury's "core" business fell 1.3%, with volumes down 4%. "With stagflation a perfect storm for Sainsbury with a higher exposure to both inflation-linked leases and inflation-linked debt, one would assume profitability is under pressure," Truman wrote in a note to clients yesterday.

However, King said Sainsbury's shareholders believe that the retailer's strategy "as successful has it has been, can continue to be a winning strategy in this marketplace".