Sainsbury's sales growth hit by price cuts

Sainsbury's like-for-like sales growth continued to slow in the first quarter after the supermarket group cut food prices to compete with rivals.

The increase for the three months to June compares to 0.9% in the fourth quarter and 1.1% in the three months before.

Chief executive Mike Coupe said that "the market remains competitive".

But he said that Sainsbury's merger with Asda will "create a more resilient and adaptable business for the future".

The biggest slowdown in sales was in Sainsbury's groceries division where total revenue rose by 0.5% compared with 2.1% in the fourth quarter and 3% in the same period a year ago.

Sainsbury's said that it has invested £150m to lower prices and has reviewed 51 of its ranges, which make up 27% of its grocery sales.

Mr Coupe said: "The headline numbers reflect the level of price reductions we have made in key areas like fresh meat, fruit and vegetables since March."

He added: "Our price position has improved and customers have responded well, resulting in a continuation of the improved volume trend we saw in the second half of last financial year."

But Laith Khalaf, senior analyst at Hargreaves Lansdown, said: "While the top line is just about growing, Sainsbury's efforts to lower prices mean that may not entirely feed through into profits.

Sainsbury's, which also owns the retailer Argos, reported a better performance in its general merchandise and clothing businesses.

General merchandise sales rose 1.7% in the three months to June, compared with a 1.2% fall in the fourth quarter and 1% in the comparable quarter in 2017.

Total revenues in clothing increased by 0.8%, up from 0.4% in the previous quarter but far below the 7.2% rise Sainsbury's reported in the first quarter last year.

Mr Coupe said: "General merchandise and clothing, including Argos, continue to outperform a very challenging market and we are well placed to further grow market share."

Total sales across Sainsbury's rose by 0.8%.

Merger financing

Sainsbury's is currently in talks with Asda to create the UK's largest supermarket group, which would see it leapfrogging current leader Tesco if the deal goes ahead.

Both supermarkets have said that a combination would allow them to lower prices "by around 10% on many of the products customers buy regularly".

Emma-Lou Montgomery, associate director at Fidelity Personal Investing, said: "Going forward, Sainsbury's bosses are clearly pinning their hopes on the newly-created supermarket behemoth, that a merger with Asda would create, bulldozing its way through this relentlessly competitive sector."

Mr Coupe has also said that the deal would not lead to store closures or job losses in stores.

In its announcement on Wednesday, Sainsbury's said that it had agreed a financing package of £3.5bn in relation to the proposed merger.

It also said that it remains on track to achieve £200m in cost savings this year.

Shares in Sainsbury's rose by 0.44% to 318.6p in early trading.