With Sainsbury’s becoming the latest Big Four grocery retailer to announce it expects lower profits in the coming year, we explore what’s next as the supermarket price war saga unfolds.

Posting its preliminary results yesterday, Sainsbury’s said it had delivered “strong year-end sales momentum”, reporting a rise in underlying operating profit, up +7.2% year-on-year. Having invested in £1 billion in lowering prices over the last year, Sainsbury’s saw its “highest market share gains in more than a decade,” according to Chief Executive, Simon Roberts. However, it also said that it expects profits to dip in FY25/26, down to around 1billion.

This follows a similar warning shot fired by Tesco last week, which lowered its profit guidance as it seeks to deliver “magnetic value” to win market share. Back in March, Asda’s Allan Leighton had stoked the possibility of a price war, revealing its biggest price cuts in 25 years, saying there was a “war chest” that would allow Asda to “materially” forego profits to win market share.

This, alongside continued pricing pressures from discounters Aldi and Lidi, who the Big Four are ferociously price-matching against, especially in the run up to Easter, has further escalated intensifying pricing competition within the grocery sector.

Who will blink first – does the answer lie in loyalty?

“We live in an incredibly competitive sector when it comes to the grocery sector, so price and value is always that key determinant that drives consumers through the doors of the supermarkets,” Richard Lim, CEO of Retail Economics, told the BBC’s Today programme, as he pointed to the escalating war on low prices.

Eleanor Simpson-Gould, Senior Retail Analyst at GlobalData, suggests that Sainsbury’s will need to rely on expanding Nectar Card members’ pricing to more product lines if it is to win market share. “Sainsbury’s must expand SKU coverage of its loyalty scheme pricing, especially as it is perceived as a more expensive grocer,” she said.

This week, Sainsbury’s announced plans to enhance its loyalty scheme visibility in-store through enhanced branding and retail media. A decision that Simpson-Gould describes as “apt, considering rivals Asda and Tesco are also leveraging their loyalty programmes for growth.” She added,

“Sainsbury’s must prioritise messaging around Nectar pricing and Taste the Difference quality to drive volumes and increase average basket spend.”

Eleanor Simpson-Gould, Senior Retail Analyst, GlobalData

Is Sainsbury’s well-placed to navigate sector headwinds?

Writing in Fortune, retail expert and Founder of Redline Retail Consulting, Andrew Busby, pointed to ongoing cost-challenges that could pile on the pressure on-top of a price war between the leading grocers.

“This set of results, or rather, the underlying strategy behind them, serves to illustrate that top-line numbers never tell the whole story,” he said.

“Profit outlook may have flatlined in the face of a £1 billion investment in price as the supermarket price war looks set to heat up, however, Sainsbury’s is well-placed to navigate not only these headwinds but the cost challenges presented by the Budget measures and the introduction of the Extended Producer Responsibility (EPR) in October this year.”

Will inflation pressures put paid to the price war?

However, despite cuts to prices as the supermarket price war hots up, analysts are warning that with food price inflation still rising, the costs of grocery goods at the tills will still, ultimately, continue to increase for shoppers.

Speaking to BBC News, PwC’s Senior Retail Advisor, Kien Tan, said: “Supermarkets always have discounts and promotions, particularly at this time of year in the run up to holidays, like Easter and Christmas, to try and capture shoppers attention.”

“But, overall supermarket trolleys are about +3% more expensive than they were at this time last year. And, with cost pressures increasing, they are inevitably going to have to pass on some of that cost to consumers through higher prices throughout the year,” he said.