Europe Markets

UK grocer Sainsbury's profit growth slows


British grocer J Sainsbury posted a 5.3 percent rise in annual profit, its slowest growth in nearly a decade, illustrating the pressure the industry is under to cut prices and stem the rise of the discounters.

Sainsbury's, which trails market leader Tesco and is battling with Wal-Mart's Asda to be Britain's No. 2 grocer, said on Wednesday it expected conditions in the food retail sector to remain challenging for the foreseeable future as customers continue to spend cautiously.

Ben Stansall | AFP | Getty Images

But it added that it was confident its differentiated offer, which includes a focus on own brand products, the "Brand Match" pricing scheme and the Nectar loyalty card, would allow it to outperform peers in the year ahead.

Britain's grocery market is growing at its slowest rate since 2005 due to falling food price inflation and as subdued wages growth keeps consumer spending in check.

Read MoreSainsbury's ends 9-year run of growth as sales decline in 2013

The "big four" grocers, which also includes Morrisons, are all being outpaced by sales growth at discounters Aldi and Lidl, while upmarket chains Waitrose and Marks & Spencer are also gaining share.

British consumers are shopping around to save money and are wasting less, shying away from big weekly shops and buying little and often in local convenience stores or online.

UK supermarkets under pressure from discounters

Tesco, Asda and Morrisons have been cutting prices to try to combat the discounters, with Morrisons firing the latest salvo last week with reductions averaging 17 percent on 1,200 products.

Analysts have expressed concern about a possible contagion of price cuts hitting margins and earnings across the industry.

Sainsbury's made an underlying pretax profit of 798 million pounds ($1.36 billion) in the year to March 15.

That compares with analyst forecasts in a range of 750-810 million pounds, with a consensus of 782 million pounds, and 756 million pounds made in the 2012-13 year.

Read MoreSainsbury's Justin King steps down, shares drop

Group sales, including VAT sales tax, rose 2.8 percent to 26.4 billion pounds, with sales at stores open over a year, including VAT but excluding fuel up 0.2 percent.

Though Sainsbury's 16.8 percent market share is its highest for a decade, its nine year run of quarterly sales growth came to an end in its fourth quarter when like-for-like sales fell 3.1 percent.

The results are Justin King's last as chief executive. After 10 years at the helm he will be succeeded by Mike Coupe, currently commercial director, after the firm's shareholders' meeting in July.

Sainsbury's proposed a full year dividend of 17.3 pence, up 3.6 percent.