Sainsbury’s chief executive Justin King has said the grocer will continue to focus on “genuine promotions” on products bought frequently as it continues to exploit its Nectar loyalty scheme.

King said promotions had peaked at 34% last year, adding: “Our promotions are better suited to our customers.” He said: “With Nectar, we have 16 million active users, which is up 1 million year-on-year, and our coupon-at-till campaign is working really well.” More than 100 new suppliers have signed up to the coupon-at-till campaign since it launched last year.

Since late last year, loyalty schemes have been a key weapon in the battle for grocery market share. “Coupon-at-till offers a genuine incentive off the cost of a shop, and its success separates the haves and have-nots of data,” said King.

Sainsbury’s last week reported underlying pre-tax profits slightly ahead of expectations, up 17.5% to £610m in the year to March 20. Total sales excluding petrol were up 6.7% and like-for-like sales were up 4.3%. Underlying operating profit was up 8.9% to £671m.

Charles Stanley analyst Sam Hart said Sainsbury’s performance was “creditable, given the difficult consumer environment, tough competition and a £25m to £30m drag on operating profit from investment in new space and IT”.

King warned that the outlook remained tough and that consumers face tax rises. He also said fuel price inflation had hit consumers, with the average fill-up rising between £5 and £6 year on year.

Jonathan Pritchard, analyst at Oriel Securities, said: “Life in the sector is clearly going to be very tough this year, with limited like-for-like sales growth and no guarantee that margins will rise to preserve growth in earnings before tax. At Sainsbury’s, the expected space growth is occurring, but momentum is held back by start-up costs.”

Sainsbury’s said its non-food business is growing at three times the rate of food and clothing is a “star performer”.

The grocer is stepping up plans for store extensions to drive non-food sales, and completed 13 large extensions in the year.

Ambrian analyst Philip Dorgan warned that “new space costs money, takes time to mature and is not certain to hit return targets”. But he added: “We think food retailers should benefit from market growth and share-capture in non-food, so we aren’t concerned about the current sales slowdown.”

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