Changes to employers’ national insurance contributions announced in the government’s October budget will drive inflation, particularly on fresh food, according to the boss of Sainsbury’s as he announced a 5% pay rise for workers.
“It is coming at us fast in a way that was unexpected and will bring inflation as a result,” Simon Roberts, the chief executive of Sainsbury’s, said of the changes to NICs, which will add £140m to its wage bill from April.
While the retailer is sticking to plans to open more than 20 more supermarkets as well as new convenience stores, Roberts said Sainsbury’s would have to be “very thoughtful about where we hire” as a result of the higher costs.
Roberts would have preferred for UK businesses to be given more warning about the tax changes and said they could have been phased in more gradually.
Sainsbury’s, which said it enjoyed its “biggest ever” Christmas, is splitting its pay rise for 118,000 hourly paid employees into two parts – increasing to a minimum of £12.45 an hour from March and then £12.60 in August in order to “navigate a challenging cost environment”.
The decision will result in the minimum annual pay for a full-time worker outside London increasing from £22,882 to £24,026 by August.
Roberts said Sainsbury’s would do everything it could to head off price rises for its customers as part of existing plans to cut £1bn in costs through more efficient operations, including more automated tills and “SmartShop” devices that allow customers to scan items direct from the shelves.
Shoppers sought out discounts on food and other goods in the run-up to Christmas and spent less on big-ticket items such as furniture and large electronics. Roberts said he expected those trends to continue this year.
He joined the Tesco chief executive, Ken Murphy, in calling on the government to avoid loading big retailers with additional costs from packaging regulations and changes to business rates.
Roberts said changes that could lead to higher bills for large stores would hit “parts of the UK where supermarkets play a fundamental role in the heart of the community”.
He made the comments after data showed a last-minute dash by customers to secure Christmas shopping lifted sales at Sainsbury’s over the festive period.
Roberts said: “This Christmas customers shopped later than ever. The Sunday and Monday [before Christmas Eve] were really huge days.” That helped boost grocery sales by 3.8% in the six weeks to 4 January, while sales at its Argos stores rose 1.1% in that period.
Grocery sales were similar to its rival Tesco, which on Thursday reported a 4% rise in underlying sales over the festive period. The UK’s two largest grocers are thought to have benefited from difficulties at Asda and Morrisons.
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Boots, the chemist, said on Friday it also had strong growth in the festive period. Sales were up 8% in the three months to the end of November followed by a “solid Christmas trading period”. Growth was driven by a 23% increase in online sales and a 20% rise in sales during the Black Friday discount event, with beauty one of the winning categories in the UK last year.
Sainsbury’s said sales at Argos were down 1.4% over the final three months of the year. The company said a rise in customer numbers and sales growth over the Black Friday and Christmas weeks was more than offset by “subdued customer spending outside these key periods and a highly promotional environment”.
Sales of toys and large electronics, such as TVs, were hit particularly hard as shoppers reined in spending on non-essentials.
Sainsbury’s said it had gained market share over Christmas, with sales of fruit, vegetables, meat, fish and poultry all doing particularly well. Customers spent 16% more on the retailer’s premium Taste the Difference range, while clothing sales rose 2.2% in a declining market.
The retailer said it would meet annual profit expectations of just over £1bn for its retail business and upped expectations for its financial services division, leading to the analyst Clive Black at Sainsbury’s broker Shore Capital to up forecasts by £10m.
However, analysts at Jefferies said they did not expect a wider upgrade as Sainsbury’s had displayed “a familiar pattern: strong grocery performance offset by a weaker-than-expected Argos”.
