UK prices spiral ensnares Unilever and Sainsbury's

Supermarket chain says it can 'see the early signs of customers being a bit more cautious, watching every penny, every pound'

Sainsbury's says rising prices will eat into profits. PA

Supermarkets say profits enjoyed during the Covid-19 lockdown are being shattered by a cost of living crisis that is raising prices.

On Thursday, Sainsbury's said profits will be down this year as customers are “watching every penny”.

Bosses said they wanted to swallow some of the price rises on everyday products, as Unilever — the company behind Dove soap and Magnum ice cream — confirmed its higher prices had raised revenue but cut sales.

Unilever said in a trading statement its higher prices had turned off some customers, with volume of sales down one per cent.

“This period of unprecedented inflation requires us to take further pricing action with some impact on volume as a result,” said the group.

Sainsbury’s followed market leader Tesco in warning of a drop in profit this financial year as soaring inflation combines with below-inflation salary rises.

“It's early days, the first month with the (higher) fuel bills landing … But we can see the early signs of customers being a bit more cautious, watching every penny, every pound,” CEO Simon Roberts said.

Bosses revealed pre-tax profits for the 12 months to March 5 hit £854 million, compared with a £164 million pre-tax loss a year earlier. This was also a three-fold increase on pre-pandemic profits of £278 million.

Mr Roberts said: “We know just how much everyone is feeling the impact of inflation, which is why we are so determined to keep delivering the best value for customers.

“We have been able to drive more investment into lowering food prices funded by our comprehensive cost savings plans.

“As a result, we continue to inflate behind competitors on the products customers buy most often.

“Last week we announced the next bold phase of investment, lowering prices across 150 of our highest volume fresh products.”

The supermarket said profits would be reduced in the coming year as it cuts prices to help customers with the cost-of-living crisis.

But before reducing prices, it said shareholders would enjoy a dividend bonanza, with payouts of 13.1p per share — a jump of 24 per cent on a year ago.

The company's preferred profit measurement — underlying pre-tax profits, which strip out one-off costs — hit £730 million. However, the grocer warned this would be between £630 million and £690 million for the coming year.

“The year ahead will be impacted by significant external pressures and uncertainties, including higher operating cost inflation and cost of living pressures impacting customers' disposable incomes,” said Mr Roberts.

He also pointed out that Sainsbury's had spent £100 million on pay rises for staff, bringing their salaries up to the Real Living Wage.

Analysts see Sainsbury's as more challenged than other supermarket groups because of its ownership of the Argos general merchandise business — a subsector more exposed to pressure on consumers' disposable income.

Britain's inflation rate hit a 30-year high of 7 per cent in March and is expected to peak at nearly 9 per cent later this year. Food inflation hit 5.9 per cent in April, according to industry data.