Misplaced poster reflects desperate battle for sales in beleaguered grocery sector

These are desperate times in the grocery trade. Tesco dominated the news agenda last week as it revealed a shock £250 million black hole in its profits, but this week the focus has shifted to rival J Sainsbury, which updates the market on its performance today

Nothing of the order of the Tesco calamity is anticipated, but the news from Britain’s third largest food retailer will not be good. Like Tesco, Sainsbury’s is suffering from the intense competition in the grocery sector led by German-owned discounters Aldi and Lidl.

Margins are being squeezed by price cuts – this week Sainsbury’s kicked off a new round of hostilities in the petrol price war by cutting prices of petrol and diesel by 5p a litre, a move that was swiftly followed by Tesco and Asda. Good news for motorists, as prices at the pump are now at their lowest level in almost four years, but more bad news for profits.

Today's figures will be the first set of results presented to the City by new chief executive Mike Coupe, formerly the group's commercial director, who had the misfortune to take over the top job from Justin King at exactly the time Sainsbury's remarkable record of 36 consecutive quarters of sales growth came to an end.

Since then sales have gone into reverse and the group’s market share is in decline. Coupe is pouring resources into price cuts in an effort to claw back business lost to the discounters but analysts fear the 1.1 per cent drop in underlying sales over the first quarter will have accelerated to perhaps 4 per cent in the second quarter.

That could force the new boss to follow the lead of Dave Lewis at Tesco and take the axe to dividend payments to preserve cash.

Finishing touches

As Coupe was putting the finishing touches to his first results presentation yesterday, a misplaced Sainsbury’s staffroom poster gave an illuminating insight into the increasingly desperate battle for sales in the beleaguered grocery sector.

Entitled the “Fifty Pence Challenge”, the poster urged store staff to “encourage every customer to spend an additional 50p during each shopping trip between now and the end of the year.”

The large poster, illustrated by a picture of a purse and a 50p coin, had been intended to motivate staff but ended up prominently displayed in the window of a Sainsbury’s store in east London.

Snapped by a passer-by, who posted the picture to Twitter with the hashtag #50pChallenge, the image swiftly went viral, with customers mocking the group’s efforts to boost sales. Despite numerous requests the supermarket’s social media managers declined to explain exactly how they intended to persuade customers to part with those extra 50p coins. Perhaps Coupe will be more forthcoming today. ****** As Britain basked in one of the warmest Septembers on record, fashion retailers were feeling a different sort of heat as their autumn ranges stayed firmly on the shelves.

In an unscheduled trading statement yesterday, fashion group Next warned that the unseasonally warm weather last month meant it missed internal targets of a 10 per cent increase in third quarter sales, which rose by 6 per cent instead.

There were some good weeks in August, it said, but September is a far more important month as higher margin items such as coats and boots are in the stores.

Some of those lost September sales may yet be recouped once the weather turns and, for the time being, the group’s forecast of full-year profits in the £775-815 million range remains intact. It warned, however, that a continuation of the Indian summer could put those figures at risk.

Retailers are notorious for blaming the weather for missed targets but Next has been one of the most consistently profitable retailers in recent years and the City took its sales alert seriously.

Struggling rivals

The fear is that if a company as disciplined and successful as Next is suffering, then how much worse will trading be at struggling rivals such as Marks & Spencer and Debenhams?

Shares in Next fell 4 per cent while M&S lost 2.6 per cent, hit additionally by reports that it has suffered a sharp drop in market share in recent months. Fiona Walsh is business editor of theguardian.com