On the money: Sainsbury's ready for battle on quality

Sainsbury's chief executive Justin King has today (9 May) welcomed moves from its UK retail rivals to invest in product quality and service.

Price remains a key competitive weapon for UK food retailers but the likes of Tesco and Morrisons are also investing in fresh food and customer service to try to win over the country's cautious and ever-more promiscuous shoppers.

Reporting its annual results, Sainsbury's, the UK's third-largest retailer, today claimed it had "outperformed the market" in the last year and said its market share had reached its highest level for a decade.

Sainsbury's Brand Match price-comparison initiative, launched last autumn, has helped convince consumers the retailer can compete with the likes of Tesco and Asda on price. However, King today insisted the company was also prepared to compete on other grounds.

"If the conversation in this market place is to shift and people are arguing over the quality of what they sell or the quality of the service they deliver in store, then we are very happy that's the competitive picture," King said. "We believe we have real leadership and real strength on that dimension."

However, King acknowledged that retailers have to "fight the good fight on pricing". He said the Brand Match scheme, which compares the price of brands on sale at Sainsbury's with those at Tesco and Asda, had been a "real step on" in improving the retailer's perception for value among consumers.

Last week, Waitrose extended its own Brand Price Match, which it says offers prices identical to Tesco on 7,000 branded lines, excluding promotions. Analysts had said the move could have an impact not just on Tesco but on Sainsbury's sales.

Nevertheless, King said Sainsbury's Brand Match was "by far the most comprehensive price promise" made by retailers. "It's 14,000 lines, checked every single day, it includes promotions and it's done here and now - there is no need to visit a website," he said. "It's still head and shoulders the best price promise."

Sainsbury's has been a retailer that has also used coupons to try to deliver value to consumers. It is a tactic that Tesco CEO Philip Clarke admitted this year that his company had failed to use effectively in recent months as its sales in the UK suffered.

King said 375m coupons had been issued to consumers in the last year and revealed Sainsbury's suppliers had been behind much of the intitiatives.

"A figure we haven't revealed before and, I think tells its own story, is 375m coupons issued in the last year, more than a million coupons a day, driven almost entirely by our suppliers - 125 suppliers, 650 different campaigns in the last year, giving customers coupons that they really value."

King was asked if the increasing use of vouchers would eat into Sainsbury's margins. However, the Sainsbury's chief argued its use of vouchers, backed by data gleaned from its Nectar loyalty programme, was a successful investment.

"The conversation in recent weeks has I think shifted towards the idea that some investments are being made by some retailers are not profitable investments. We don't recognise that description of the market, certainly for ourselves," he said.

"Vouchers are the most effective way of spending money because you can spend them in a targeted way. Vouchers are the most profitable investment a retailer can make because they are targeted at changes the customer might want to make. Vouchers driven off loyalty data at the point of purchase as a key competitive advantage."

King would not disclose how much Sainsbury's had invested in its use of vouchers.