Sainsbury’s has joined the supermarket price war – but can it win?

Britain’s second-biggest grocer has a tough road ahead if it is to keep the promises CEO Simon Roberts has made to both shoppers and investors

Welcome to the £1bn club, Sainsbury’s. Fresh from revealing such estimable profits, the grocer reckons it can see off its rivals in the supermarket price war – also known as the best news for the UK consumer in years – and retain its membership. Has CEO Simon Roberts found some magic beans?

Before we discuss whether his beanstalk will grow as he is promising, a word about that £1bn, a 7 per cent increase on last year’s effort. This has been achieved via something called “retail underlying operating profit”, which some might consider to be a made-up number.

Why? Well, it strips out £305m of financing costs, which are really rather relevant, and excludes a further £377m of one-off charges. The actual pre-tax profits – you know, the figure that we all used to look at when I got into this game, because it’s real, and because it includes all that stuff – came to, ahem, £384m.

Nevertheless, Sainsbury’s says retail operating thingy profits should roll in at about £1bn in the current year, despite Asda parking its tanks on all of its rivals’ lawns, and Tesco responding by saying, “Come and have a go if you think you’re tough enough.”

You may recall that Tesco, using a similarly confected number, forecast that it would make several hundred million pounds less this year as a result of the outbreak of price hostilities. The City looked on with horror and duly ran for cover. It was significantly happier with what Sainsbury’s was promising, which gave the shares a gentle boost. How does Roberts plan to keep it sweet?

There are an awful lot of words in the Sainsbury’s statement, and there’s plenty of jargon to boot. I tend to worry when businesses resort to verbal diarrhoea. If you’ve a good story to tell about your business, you shouldn’t need to write a novella to tell it.

However, the Sainsbury’s CEO made a great play of his cost-cutting programme. Wade through his magnum opus and you’ll see he’s promising a lot more of that. Roberts says that the company is “confident in our plans to deliver £1bn of cost savings by March 2027”.

“We achieved savings of around £350m in 2024/25, bringing total savings over the last four years to over £1.6bn,” the group said.

‘Sainsbury’s is my family’s preferred grocer. But if Roberts doesn’t live up to his promises by keeping prices competitive, and if he is tempted to ease up when it comes to the battle with his rivals, then I’m afraid we’ll switch to Tesco’ (EPA)

Some of these you can see when you visit a Sainsbury’s. The instore fish counters and bakeries are gone, because they are expensive to operate. Cafes have been closing, too. Some of the work goes on behind the scenes: technology can be a huge help if used well, while effective staff management can deliver productivity gains. Working smarter in a host of areas can pay real dividends.

These sorts of things matter because it isn’t just prices Sainsbury’s has to worry about. Staff costs are rising, too. Rachel Reeves increasing taxes on jobs, and lowering the pay threshold at which they kick in, is particularly hard on this sort of business because it has a large workforce of relatively low-waged staff. Supermarkets also have to compete for workers, which means it has to compete on pay as well as price.

Squeeze your suppliers too hard and you run the risk of creating problems with, say, the farming lobby. It is already in an ugly mood as a result of what’s been dubbed the “tractor tax” – the increase in inheritance tax facing the owners of larger farms.

The government would be delighted to see farmers’ guns trained elsewhere. It might even stir the pot by prodding regulators or setting up some sort of inquiry. We’re on your side, honest! We’ll help you fight back against those beastly grocers.

Sainsbury’s doesn’t have the sheer muscle that Tesco has as a result of the latter’s enormous size. Aldi and Lidl continue to add new stores, and to win both market share and plaudits from Which? for serving up the cheapest weekly shop. Under Allan Leighton, Asda looks primed for a revival. Faced with this lot, Roberts might be a rare CEO worth the bloated pay deal they give these people.

I’ll come clean: Sainsbury’s is my family’s preferred grocer. But if Roberts doesn’t live up to his promises by keeping prices competitive, and if he is tempted to ease up when it comes to the battle with his rivals, then I’m afraid we’ll switch to Tesco. The word “loyalty” was repeatedly used in the Sainsbury’s statement. That cuts both ways.

I think Roberts has his work cut out for him. If Sainsbury’s can pull it off while keeping to that profits forecast, he’ll be quite the magician. I’d even be prepared to forgive another bout of verbosity when it comes to next year’s results statement.