May 1, 2019 / 6:33 AM / 25 days ago

Britain's Sainsbury's to invest and cut prices after Asda dream dies

LONDON (Reuters) - Sainsbury’s boss Mike Coupe vowed to cut prices and invest in its stores and online business to steer Britain’s second biggest supermarket back to sales growth after the humiliation of his failed takeover of rival Asda.

FILE PHOTO: Customers shop in a Sainsbury's store in Redhill, Britain, March 27, 2018. REUTERS/Peter Nicholls/File Photo

Sainsbury’s $9.5 billion bid to buy the Walmart-owned Asda and surpass market leader Tesco was blocked by Britain’s competition regulator last week, in a public rebuke to Coupe who had orchestrated the deal.

Rather than lowering prices for customers as the retail veteran had argued it would, the Competition and Markets Authority (CMA) said the combination of the second and third biggest supermarkets would mean higher prices and must be blocked. Sainsbury’s spent 46 million pounds on the failed deal.

Coupe, 58, is now under pressure to show Sainsbury’s can prosper on its own, around six months after its sales started to stagnate in the face of competition from a resurgent Tesco and the march of German-owned discounters Aldi and Lidl.

Chief executive since 2014 and well regarded by shareholders before the failed deal, Coupe said he would not quit and was committed to restoring growth. Regulatory filings showed he had bought 100,000 shares in the company on Wednesday.

“I’m committed to the business, I’ve got the support of the board, the support of shareholders and we’re doing all the things that we need to do in terms of adapting our business to our changing customers’ needs,” he told reporters.

“I’ll still be talking to you in months and years in the future,” he added.

Coupe had made unwanted headlines when he was caught on camera singing: “We’re in the money” shortly after the Asda deal was first announced a year ago.

He has been working with a new chairman since March when Martin Scicluna took up the role.

INVESTMENT

The group reported a drop in like-for-like sales of 0.9 percent in the fourth quarter to March 9, but that was not as bad as feared after a decline of 1.1 percent over the Christmas period.

Better-than-expected full-year profit helped to send its shares up 5.4 percent by 0820 GMT, reducing the losses this year to 11.4 percent.

“The market had been anticipating materially worse scenarios: price/margin reset, new strategy, possibly new CEO. None of this came to play,” said Bernstein analyst Bruno Monteyne.

Sainsbury’s said it would now invest over 500 million pounds to improve more than 400 of its supermarkets this year. It would also reduce net debt by at least 600 million pounds over the next three years and would maintain its dividend policy.

The group will also seek to make the business more efficient so it can reduce prices on core commodity products.

“Our prices in core commodity areas will come down over a period of time, not overnight because there’s lots of work to be done to make sure we can afford to do that but we will seek to reduce prices throughout our organisation,” Coupe said.

The CEO noted that 4.7 billion pounds of Sainsbury’s total annual revenue of 32.4 billion pounds now comes from its online businesses.

The group was increasing investment in technology to make shopping across Sainsbury’s, general merchandise retailer Argos and Sainsbury’s Bank as quick and convenient as possible, he added.

The purchase of Argos helped the underlying pretax profit to rise by a better-than-expected 7.8 percent to 635 million pounds. The total dividend increased 7.8 percent to 11.0 pence.

($1 = 0.7672 pounds)

Reporting by James Davey and Kate Holton, Editing by Keith Weir

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