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Supermarket sales come under pressure

Trading updates from UK supermarket giants Tesco and Sainsbury's should this week confirm that sales growth is beginning to slow. Analysts expect sales have increased by anything from 0% to 1.5% at Tesco and between 0.5% and 1% of Sainsbury's in the first quarter of 2010. This comes after a period of relative strength during the credit crunch and recession for the UK supermarket sector and many believe that sales will come under more pressure in the short to medium term. So why is the sector starting to struggle?

There is a feeling that with food price inflation now fairly subdued, against an increase in general inflation, supermarkets will find it difficult to push through price rises in the short to medium term. As a consequence we could see profit margins come under pressure at the likes of Tesco and Sainsbury's and when you also take into account the difficult economic situation it is not difficult to see why the overall picture could be changing.

It is hard to imagine that little over a year ago Tesco's was experiencing like for like sales growth of 4% and Sainsbury's was firmly back in growth mode with like for like sales increasing by 7.8%. These were very impressive figures especially in the midst of a very difficult recession that were basically assisted by relatively high food price inflation.

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