Sainsbury's flounders as profits dive at Morrisons

Sainsbury's chief executive Justin King will consider reducing the grocer's range, and is assessing its future in non-food.

Last week, the retailer posted its second profit warning in three months.

It was followed a day later by a similar warning from Morrisons - the first in its history - which has struggled to integrate the Safeway chain acquired earlier this year.

King revealed that he will conduct a full review of Sainsbury's operations over the next few months and will brief the City at the second-quarter trading update on October 19.

He will examine Sainsbury's range and could cut the number of SKUs to gain supply chain benefits. He said: 'The objective will be to reduce the range, because it creates challenges for the supply chain.'

Sainsbury's has also been left with overstocked non-food lines that it will have to discount heavily to shift, which will hit margins and profits. Analysts expect profits to be about£100 million less than forecast - Merrill Lynch expects profit before tax of£376 million.

According to King, Sainsbury's is not making space work hard enough in its 157 stores measuring more than 40,000 sq ft (3,715 sq m). Decisions must be made about which non-food categories can be jettisoned.

Morrisons' profit warning came on the back of poor trading at Safeway. Like-for-likes were down 7.2 per cent for the 21 weeks to June 27.

Morrisons has invested in cutting Safeway's prices, moving the chain away from a hi-lo price strategy, but sales have slipped because of insufficient pick-up in volumes.

Numis has slashed its profit forecast for Morrisons from£550 million to£483 million.