Sainsbury's sees no respite in tough market for 18-24 months

LONDON, Dec 21 (Reuters) - The chief executive of Sainsbury's said on Sunday it would take another 18 months to two years before "extremely challenging" conditions in the grocery market improved.

"First (Other OTC: FSTC - news) , as of today, there's no sign the grocery market is going to return to volume growth and that would be a tipping point," Mike Coupe said in an interview with the Sunday Times.

"Second, there's no sign that there will be food inflation coming through in the next period, so the market dynamics are going to be extremely squeezed."

Coupe, however, said he believed Sainsbury's was well placed for a market recovery. "We have outperformed by about 1 percent a year for the past five years and I would expect that to be the case in the future," he said in the interview.

Sainsbury's, which trails market leader Tesco (Xetra: 852647 - news) and Wal-Mart's Asda, saw its sales fall by 1.8 percent in the 12 weeks to December 7, in an overall market that only grew by 0.1 percent, according to data from Kantar.

Coupe told the newspaper that the drop was down to Sainsbury's focus on fresh food, which has seen the biggest price cuts as the big grocers take on the discounters.

He said, however, that early Christmas trading at Sainsbury's and the discount Netto stores it has opened was positive. "So far, so good," he said.

Coupe also said he would not raise cash by selling and leasing back more of Sainsbury's stores, an aim of activist investors such as Crystal Amber.

"Sale and leasebacks are just another form of debt, and very expensive debt. We're 60 percent freehold, and we believe it would be the wrong way to fund the business," he told the Sunday Times. (Reporting by Paul Sandle; Editing by Tom Heneghan)