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The boss of J Sainsbury has warned customers will face higher grocery prices because of a £140mn hit to its tax bill from Labour’s Budget.
Chief executive Simon Roberts said on Thursday that the “barrage of costs that are coming at us . . . fast” was “unexpected” and “significant”, referring to the increase in employers’ national insurance contributions and a reduction in the earnings threshold at which the tax kicks in from April.
He said Sainsbury’s “will be looking to do everything we can to mitigate the impact” of UK chancellor Rachel Reeves’ changes but they will be “inflationary” given supermarkets’ razor-thin profit margins of about 3 per cent and Sainsbury’s annual tax bill of almost £1bn before the Budget changes.
“It will impact our own cost base . . . it will impact our suppliers’ cost base . . . I don’t think you can shy away from the fact that, because of the changes in everyone’s cost base, it is going to feed through into higher inflation,” he said. “There will be difficult decisions to take as a result.”
His comments came as underlying profit at the UK’s second-largest supermarket chain rose 3.7 per cent to £503mn on retail sales of £16.3bn in the six months to mid-September. The grocer maintained its annual profit outlook of about £1bn, an increase of between 5 and 10 per cent year on year.
Sainsbury’s sales, excluding fuel, were up 4.6 per cent, with grocery sales growth of 5 per cent and a decline of 1.5 per cent in general merchandise and clothing, including a fall of 5 per cent at retailer Argos. Shares dropped 2.6 per cent to 260p in morning trading on Thursday.
The supermarket said Argos had suffered from a slow start to the summer and lower demand for big-ticket items, as well as weaker online traffic.
Roberts said the “food business is going from strength to strength” and trading at Argos had improved in recent months compared with a “tough first quarter”. He noted that sales of the grocer’s premium Taste the Difference range were up 18 per cent in the second quarter, with those products now appearing in one in three baskets as customers dined at home more.
The company, which controls 15.2 per cent of the UK food market and owns the Tu clothing brand, has been converting more of its general merchandise space in shops to groceries to offer more choice to customers. Like larger chain Tesco, it has been deploying Aldi price match and loyalty schemes to boost trade amid a fierce battle with rivals.
Second-quarter like-for-like sales, excluding fuel, rose 4.2 per cent, from 2.7 per cent in the first quarter, while like-for-like sales for the half-year increased 3.4 per cent.
This year it set out plans to cut a further £1bn in costs over the next three years and “right-size” the business.