Sainsbury's sales growth slows as prices slashed to lure shoppers
Supermarket Sainsbury's has seen a slowdown in sales growth, but insisted it has the "right strategy" in place as it pushes ahead with its £12 billion Asda tie-up.
The Argos owner reported a 0.2pc rise in like-for-like sales for its first quarter to June 30, down from growth of 0.9pc in the previous three months.
It said grocery sales rose 0.5pc, while general merchandise grew by 1.7pc and clothing lifted 0.8pc in a "very challenging market".
While it was left nursing a slowdown in overall sales growth, Sainsbury's said sales by volume had improved thanks to recent price cuts.
Its sales performance was also better than feared, with the group expected to reveal a sales dip in the quarter.
Group chief executive Mike 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.
"The market remains competitive; however, we have the right strategy in place, and our proposal to combine Sainsbury's and Asda will create a dynamic new player in UK retail, with the scale to give customers more of what they want today and create a more resilient and adaptable business for the future."
The group said it had secured a £3.5bn funding package "on attractive terms" for its mega-merger with Big Four rival Asda.
It plans to deliver around £500m in cost savings from the deal - excluding investment in price cuts - if it is approved by Britain's competition watchdog.
The Competition and Markets Authority (CMA) is currently in the "pre-notification" phase of its investigation, which entails gathering information before a formal inquiry can begin.
A merger between the duo, the UK's number two and three supermarkets, will create a supermarket titan bigger than Tesco, with revenues of £51bn and a network of 2,800 Sainsbury's, Asda and Argos stores.
They have pledged to cut prices on everyday products by around 10pc after the deal.
But fears have been expressed that suppliers could get squeezed as a result, with the tie-up giving the merged entity increased buying power.
Shares in Sainsbury's rose more than 1pc after the trading update.
Mr Coupe said the sales slowdown came as a direct result of its price cuts, with its own inflation down by 1.5pc in the quarter and outstripping rivals.
Recent industry figures from Kantar Worldpanel showed Sainsbury's lagging behind its Big Four rivals and missing out on a boost from the BBQ weather and World Cup optimism.
But Mr Coupe said the group's actions to cut prices on certain lines had already driven results, with sales of rump steak up 97pc, king prawns up 45pc and cherry tomatoes 25pc ahead.
Sainsbury's has pumped £150m into lowering prices, while also overhauling 51 of its ranges - representing 27pc of its grocery sales.
The group's latest figures showed first quarter online grocery sales rose 7.3pc while convenience stores saw a 3.6pc rise.
Laith Khalaf, a senior analyst at Hargreaves Lansdown, said: "We know that consumers were in fine fettle in May, as the royal wedding and some good weather lifted spirits, and that's helped Sainsbury's to achieve a positive period of trading."
He added: "Conditions remain challenging though and while the top line is just about growing, Sainsbury's efforts to lower prices mean that may not entirely feed through into profits."