Sainsbury’s has reported falling first half profits and unveiled plans to invest in price and quality to fight back in the new era of grocery retailing.

For the 28 weeks to September 27, underlying pre-tax profit was down 6.3% to £375m. Underlying group sales were down 0.3% and retail sales were flat. Like-for-like sales were down 2.1%.

New chief executive Mike Coupe has unveiled his strategic review. Under the title ‘Evolving to win’, Sainsbury’s said that it expects supermarket like-for-like sales in the sector to be negative for the next few years but has “robust plans” to address the challenge.

Sainsbury’s will invest an additional £150m in price – around half in the second half and the remainder in the first half of 2015/16 – and improve the quality of 3,000 own-brand products.

The grocer said due to the price investment in the first half, it expects profitability to be lower in the second half than the first.

Sainsbury’s will open 500,000 sq ft of space in each of the next two years, followed by 350,000 sq ft in 2017/18. Over half of the new space will be convenience stores, and it continues to target opening 100 convenience stores per year.

A review of its supermarket estate found that around 75% of its stores are in the right locations and are the right size, while 25% will have some under-utilised space over the next five years which it will use to expand non-food, and partner on concessions.

Following this supermarket review, Sainsbury’s has decided to withdraw from 40 schemes in its property pipeline that it said are “unlikely to achieve an appropriate return on capital”, and took an impairment on 40 stores, resulting in a total impairment and onerous contract charge of £628m.

Sainsbury’s will also trial new supermarket concepts over the next few years. Elements of the trial will include addressing the balance between food and non-food to ensure it optimizes its non-food offer, ensuring its stores are convenient and easy to get in and around quickly, using technology to help customers and staff, speed of checkout and improving customer service.

It will also trial new ways for customers to order and acquire their groceries, including click and collect. It will also open its first dark store in Bromley by Bow in 2016.

Sainsbury’s will deliver total operating cost savings of £500m over the next three years, a step up on recent levels. It will reduce capital expenditure to between £500m and £550m per annum over the next three years, approximately 2% of sales.

Sainsbury’s will maintain its interim dividend at 5%.

Coupe said: “Our strategy is evolving to address the continuing shifts in customer shopping patterns which we believe will lead to a greater emphasis on product quality and ease of shopping, and an increase in multi-channel shopping.

“We have examined every aspect of our business and we have good foundations for future growth in our supermarket and convenience estates, our online and non-food businesses and in Sainsbury’s Bank. However, we need to make sure that we are investing in the right areas and by reducing our costs and capital expenditure we are ensuring that we have the resources to enable us to do so.

“We will continue to differentiate ourselves from a position of strength by offering great products and services at fair prices, investing in the quality of our food and investing in price in areas where our customers tell us it matters most. By knowing our customers better than anyone else we will continue to serve them through multiple channels and in ways that make their lives easier, regardless of changes in the market. Our colleagues will remain our greatest asset; we will invest in their training and development to ensure they can continue to deliver industry-leading service.

“Importantly, our values remain unchanged. They are what make us different and remain at the very core of our business. I am convinced customers will continue to recognise the value of our values as we evolve to win.”

Sainsbury’s is aiming to improve its customer experience via investment in staff training and new user-friendly technologies, for example, the roll-out of ‘CAM’, an automated availability tracking tool which reduces cost and improves on-shelf availability throughout the day.

Sainsbury’s is also investing in systems infrastructure in a bid to create “a single view of customers”.

Last week Sainsbury’s and partner Dansk Supermarked opened the first Netto store in Leeds. The trial will see it open 15 shops by the end of next year.

Sainsbury's reports interim profits down 6% as it unveils fightback plan