Sainsbury sales leap deals blow to Tesco

With food inflation rising fiercely according to official measures, that would only be good news for hard-pressed family budgets, though it would hurt the sector's profits. Sainsbury's fourth-quarter like-for-like sales rose 4.1%, its 13th consecutive quarter of improvement.

That beat City expectations and vindicated the optimism of chief executive Justin King, who has been insisting a recession is not a certainty and the economy is performing reasonably well.

"We are pleased," he said. "I've not been a subscriber to the doom and gloom view. Household budgets are squeezed but food is less than 10% of the family budget. You've seen big price increases on things like bread and other farm goods, but the reality is that there are plenty of other things that haven't gone up."

With Wm Morrison, Asda and Sainsbury's performing strongly, the only question mark hangs over Tesco. It remains the most powerful player by far but its sales figures have disappointed of late. Analysts say it is likely to respond aggressively to ensure it holds market share.

Nick Bubb at Pali International said: "The market still seems to think that Sainsbury's will be the big loser in the battle between Tesco and Morrisons, but we can see no sign of it losing momentum so far."

Sainsbury shares, the worst performers in the sector this year, today added 7½p to 344p. That values the company at £5.95 billion, much lower than the £10.5 billion takeover bid that seemed close to going ahead last year.

Analysts say the company is now barely worth more than its property portfolio, suggesting the shares have been oversold. It fended off a takeover bid from CVC, and then seemed on the verge of selling itself in a 600p-a-share deal to a fund owned by the Qatari royal family. The Qataris pulled the funding at the last minute.

The fund, Delta Two, retains a 25% stake, and could return with a fresh bid once rules allow.

Total sales in the fourth quarter were up 5.1% excluding fuel, which means Sainsbury's is now selling goods worth £2.7 billion every three months.

It launched a "feed your family for a fiver" campaign today, offering healthy meal ideas for £5 or less.