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Sainsbury’s halves development pipeline and withdraws from planned projects

Sainsbury’s has announced it will halve its development pipeline in the next two years as it reported a fall in profits and like-for-like sales in the first half of 2014/15.

The supermarket retailer said it would open 500,000 sq ft of new space in each of the next two years, a reduction from 1m sq ft of new selling space that was planned for 2014/15.

In 2017/18, it will further cut the opening of new selling space to 350,000 sq ft.

Over the next three years, Sainsbury’s will open eight new full-size supermarkets and four replacement stores, three of which it said were mixed-use developments that would unlock “significant property profits”.

It will continue to target opening 100 new convenience stores each year, which will account for half of its total new space.

The announcement came as Sainsbury’s reported a 6.3 per cent fall in underlying pre-tax profits to £375m in the first half of 2014/15, down from £400m in the same period last year.

Like-for-like sales also fell by 2.1 per cent in the period, a trend Sainsbury’s chief executive Mike Coupe said would continue, in part due to the rise of discounters.

Sainsbury’s is the latest supermarket retailer to announce cuts in its store investment programme, following similar reductions from both Tesco and Morrisons earlier this year.

Following a review of the store estate, Sainsbury’s said it had “decided to withdraw from a number of schemes in our property pipeline that are unlikely to achieve an appropriate return on capital”.

In a presentation to investors and analysts, Sainsbury’s chief financial officer John Rogers confirmed it would withdraw from “around 40” pipeline schemes, and that it had “impaired” an additional 40 of its existing stores, meaning it had reduced the book value of those sites.

Sainsbury’s declined to comment on the schemes it would withdraw from when contacted by Construction News.

The withdrawal from schemes resulted in a total impairment and onerous contract charge of £628m in the first half of 2014/15, reported by Sainsbury’s but excluded from its underlying pre-tax results.

Over the next three years, Sainsbury’s said its capital expenditure would be between £500m and £550m per year.

It will trial new store concepts, including smaller convenience stores focused on “food to go” and “food for tonight” in densely populated urban areas, and also larger convenience stores of more than 3,000 sq ft.

Sainsbury’s will also open 15 new Netto UK stores by the end of 2015 in a joint venture with Dansk Supermarked, to gain a foothold in the “growing discount grocery channel”.

Mr Coupe said: “The grocery sector is undergoing structural change as customers shop more frequently, using online, convenience and discount channels more.

“We expect supermarket like-for-like sales in the sector to be negative for the next few years, but we have robust plans to address this challenge.”

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