Sainsbury's Supermarket hit by falling Food Prices

Sainsbury's has reported a fall in annual profits as declining food prices continue to hurt the supermarket chain.

Underlying profits, which strip out one-off charges, fell to £587m for the year to 12 March. That was down from £681m in the previous year.

Pre-tax profits for the year were £548m, reversing last year's £72m loss. That result was hit by charges related to the falling value of its properties.

In April, Sainsbury's agreed to buy Argos-owner Home Retail Group.

Chief executive Mike Coupe told the BBC's Today Programme that the deal would allow customers to choose from more than 50,000 products and collect them in 2,000 outlets within four hours, which he described a "pretty compelling".

'Fiercely competitive'

Sainsbury's has been suffering from the battle among supermarkets to cut prices and said that tough environment was unlikely to change anytime soon.

"Prices are actually 4% lower, would you believe, than two years ago and that's a reflection of the fact that the market is fiercely competitive - and it will remain so for the foreseeable future," Mr Coupe said.

In an attempt to break into the discount retailing market, which is enjoying strong growth, Sainsbury's has opened 15 Netto stores in partnership with Dansk Supermarked.

The company said that the performance of those stores would be reviewed and that it would announce the outcome of that study in November.

'Solid enough'

Sainsbury's shares fell 2% in early trading in London, despite a broadly positive reaction from analysts to the latest results.

Independent retail analyst Steve Dresser said the results were "solid enough" and highlighted a 3.5% rise in sales of general merchandise, which includes clothes and household goods. Mr Dresser said that was a "really great job".

Bruno Monteyne, retail analyst at investment bank Bernstein said that over the year Sainsbury's had done a lot of work to "remove complexity" from its pricing, by offering fewer promotions, multi-buys and removing the brand match scheme. 

He said that had been done while delivering better sales figures than its peers, with "only" an 8% fall in profits.

The company has proposed a full-year dividend of 12.1p per share, which would be down 8.3% on last year's payout.