Sainsbury's has forecasted a challenging year ahead, predicting that its profits will flatline as the supermarket sector braces for a potential price war. The UK's second-largest grocer anticipates a dip in income to £1 billion while continuing to invest heavily in lowering grocery prices to remain competitive. This announcement comes on the heels of rival Tesco admitting it could face a significant hit if forced to cut prices following Asda's decision to reduce grocery costs under the leadership of industry veteran Allan Leighton.
Chief Executive Simon Roberts expressed confidence, stating, "We're in the strongest position we've ever been [on price competition] and we intend to stay there." He emphasized that while Sainsbury's expects only a modest impact from price reductions, Tesco has warned of a potential £400 million hit to its profits. Analysts suggest that Sainsbury's underlying retail profit may decrease by around £36 million over the coming year.
The competitive landscape has shifted dramatically, particularly since Asda announced it would take a hit to its profits to lower prices and regain market share. This move has sent shockwaves through the industry, causing Sainsbury's and Tesco's share prices to plunge as speculation mounted that they would need to invest heavily in price cuts to keep pace with Asda.
Despite these challenges, Sainsbury's reported a 3.1% increase in full-year sales, reaching £31.5 billion, and a pre-tax profit surge from £277 million to £384 million. However, sales at Argos, which Sainsbury's owns, continued to decline, although there were signs of improvement as the company enhanced traffic to the brand's website. Additionally, Sainsbury's reported an 8.9% drop in fuel sales to £4.7 billion, attributing this to reduced demand and lower fuel prices due to falling commodity costs.
Meanwhile, Sainsbury's is also grappling with internal changes, having announced plans to cut 3,000 jobs while simultaneously reporting strong profits. The company confirmed it would close its remaining patisserie, hot food, and pizza counters in larger stores by early summer, a decision that has raised eyebrows given its recent financial success. Popular items from these counters will be relocated to other aisles within the stores.
In the fiscal year 2024/25, Sainsbury's reported a 7.2% increase in underlying profits to £1.03 billion, driven by robust sales that offset declines from Argos. The company is targeting a cost reduction of £1 billion annually as part of its strategy to navigate the challenging retail environment. Approximately 1,500 job cuts were initiated in 2024, primarily affecting a contact center in Cheshire.
As part of its ongoing transformation, Sainsbury's plans to introduce new "On the Go" hubs offering hot food across its stores beginning this autumn. However, the closures of 61 in-store cafes, which ceased operations on April 11, have raised concerns about customer access to food services within the stores.
Despite these operational changes, Sainsbury's remains committed to maintaining a competitive edge. Roberts noted that the supermarket has invested £1 billion in lowering prices over the past four years, a strategy that has paid off with increased sales across its branded shops and website. Sales rose 4.2% to £26.6 billion, with food revenues climbing 4.5% year-on-year.
However, the company's performance has been hampered by a 2.7% drop in Argos revenues, which totaled £4.9 billion. Analysts have expressed concern that this decline could weigh heavily on Sainsbury's overall performance, especially as the economic landscape remains uncertain.
Sainsbury's has also faced pressure from rising costs and increasing competition, particularly from discount retailers like Aldi and Lidl. The recent announcement from Asda about its significant price cuts has intensified the competitive atmosphere, prompting Sainsbury's to reassess its pricing strategy. The retailer's underlying operating margin was reported at a thin 3.17% last year, raising questions about the sustainability of its pricing model in the face of fierce competition.
As the supermarket prepares for a potential price war, it remains to be seen how these strategies will play out in the coming months. With grocery price inflation hitting 3.5% in March, consumers may welcome any reductions in prices as they continue to navigate a challenging cost-of-living crisis.
Sainsbury's shares have shown resilience, recovering nearly all losses incurred after Asda's announcement in March. On April 17, 2025, shares rose by 3.6%, or 8.8p, to 256.8p, reflecting investor confidence in the company's ability to adapt to the evolving market landscape.
In summary, Sainsbury's is at a crossroads, balancing the need to remain competitive in a cutthroat retail environment while managing internal changes and external pressures. The coming year will be crucial for the supermarket as it navigates these challenges and strives to maintain its position in the market.
