Sainsbury’s nine-year run of like-for-like sales uplifts has today come to an abrupt end. While it was well trailed, it still has significant implications for the grocery sector overall.

Sainsbury’s reported like-for-like sales excluding petrol down 3.1% in its fourth quarter to March 15. The performance, the last under outgoing chief executive Justin King, was slightly below expectations and put an end to 36 consecutive quarters of like-for-like growth.

There are certain factors that have affected Sainsbury’s performance that are specific to the grocer, namely tough comparatives. In the same period last year, the sector was at the height of the Horsemeat scandal, and Sainsbury’s benefitted by being the one of the big four grocers to emerge unscathed.

Bernstein analyst Bruno Monteyne pointed out that Horsegate can be removed from the figures by looking at a two-year like-for-like figure. It says on a two-year basis, Sainsbury’s is still showing positive growth.

Aside from horsemeat, Sainsbury’s also suffered from the late timing of Easter this year - last year it was in the fourth quarter, this year it will be in the first quarter of the next financial year.

But the biggest factor affecting Sainsbury’s is the tough market. King said the market “is now growing at its slowest rate since 2005, with falling food inflation in particular benefitting customers”.

With the increasingly tough market and the relentless march of the hard discounters Aldi and Lidl, Sainsbury’s has today shown it is not immune. Shore Capital analyst Clive Black said: “Looking into the future we will be interested to see how Sainsbury’s approaches the greater discount challenge. Whilst it is not losing out to the same extent as its peers, we do not believe that Sainsbury’s is blind to the challenge.”

Competitor Morrisons laid its cards on the table last week when it slashed profit forecasts and said it would invest £1bn in price to fight back against the discounters. Tesco already revealed last month that it would invest £200m in the price of basics such as milk and bread, and a further £200m in its FuelSave promotion.

King was slightly dismissive of the price investments made so far by his competitors. He said: “What’s happened so far just the usual cut and thrust of the sector. It represents the normal sums invested from one year to the next.”

King said he is not dismissive of further price investment from rivals but added “we are well equipped if it does get worse”.

Chief executive designate Mike Coupe added: “We will continue to match prices toe to toe as we did last week with milk and eggs but we will also continue to emphasise our points of difference, and that is our values.”

Tipping point

But some analysts warned that the food sector is at a tipping point now, and a full-blown price war could be on its way.

Oriel Securities analyst Jonathan Pritchard said Sainsbury’s “seems rather relaxed about the rhetoric on price from elsewhere”. He added: “If prices of branded products are cut by Sainsbury’s quoted peers then of course it will have to follow suit. That could easily harm margins without any positive impact on the top line.”

He continued: “Sainsbury’s sees the increasing focus on discounters from Morrisons and Tesco as an opportunity to differentiate itself further with customers. However, there’s little sign of the offer resonating much with slightly better-off shoppers at the moment.”

Shore Capital’s Black believes Sainsbury’s does have a distinction. He said: “We do believe that the group has a differentiated offer that provides a little more resilience to any industry pricing activity compared with Asda, Tesco and Morrison.”

What would tip the sector is whether Tesco and Asda roll out their fire power even further following Morrisons’ price investment, and Sainsbury’s was forced to follow suit. The sector does not look like it will get any easier for the remainder of the year, and all the grocers will have their swords drawn.

Analysis: Are the good times over for Sainsbury's and the food sector?