The slight decline in like-for-like sales (excluding petrol) during the quarter was due mainly to a poor November performance, when the chain suffered as a result of its limited exposure to non-food, according to analysts Goldman Sachs.
But the figures also take into account a clear improvement in December - the run-up to Christmas with most other retailers found particularly difficult. In the four weeks to 1 January, like-for-like sales were up 2.5 per cent including petrol, and even though they declined excluding fuel sales, the drop was a more respectable 0.4 per cent - a performance highlighted by GS in the light of strong prior year comparisons (like-for-like sales in December 2003 were up 2.1 per cent excluding fuel).
New store additions also contributed to the sales growth in the quarter, with a number of former Safeway stores now rebranded and the recently acquired Jacksons chain included for the first time in quarterly results.
"That improvement over December cannot be said to mark a sea-change in Sainsbury's fortunes, but it is progress nonetheless and in our view reflects efforts to improve service and extra funds invested to raise availability," the GS analysts said.
Justin King, Sainsbury's new chief executive called the performance "a good first step in delivering our sales led recovery" and also highlighted the improvements in availability and customer service over the Christmas period.
But while King's recovery plan seems to be producing positive results, it is still very early days, and the last quarter of the year will remain challenging, not least because of further expected price cuts by the group's main rivals, Tesco, Asda and Morrisons.
"The market was very competitive in the third quarter and early indications are that the fourth quarter will be challenging with renewed pricing activity," said King. "We are continuing to invest in the customer offer, providing great quality products at fair prices and have improved our competitive pricing position. Since this time last year, we have lowered the prices of 6,000 products and our overriding objective is to deliver a competitive offer for our customers."
King's back-to-basics strategy of cutting prices, improving availability and service is a reflection of just how badly the company had been faring under previous chief executive Sir Peter Davis. His ambitious programme of store improvements effectively pushed many Sainsbury shoppers into rival stores as they became fed up with an almost constant change of floorplan, while the wholesale move into non-food was a classic knee-jerk reaction to the growth experienced by the likes of Tesco and Asda with, apparently, scant regard for the demands of Sainsbury's traditional customer base.
King has, in fact. inherited a Sainsbury store portfolio which is now among the most modern in the UK, and he has worked hard to improve behind-the-scenes efficiency in a bid to improve product availability. The investment in prices appears to be paying off, and the hope is that lower prices will help win back many of the shoppers who deserted the chain at the height of the refit programme.
King also seems content to pursue the expansion programme of his predecessor, moving Sainsbury deeper into the convenience store sector, but maintaining a point of difference with arch rival Tesco through focusing on family-run companies whose ethics are similar and which retain their own branding and personality while benefiting from Sainsbury's increased buying power.
Non-food remains a problem, however, and a complete overhaul of the company's portfolio is inevitable, while the retail services division - in particular Sainsbury's Bank - continues to underperform as a result of increasing competition.
Sainsbury's management clearly have more reason for optimism at the start of 2005 than their counterparts at Marks & Spencer, the other major underachiever in 2004, but there is still much work to be done (in an increasingly competitive environment) before they can begin to relax.
Rivals pull ahead
Sainsbury's trading statement came on the same day as the latest figures for all UK supermarkets were released by TNS Superpanel. In contrast to earlier figures from the British Retail Consortium, which covers all retail operators and not just the supermarkets, the TNS data show a strong performance from many of the leading players during Christmas.
Tesco, which is yet to issue its own trading statement, appeared to stretch its lead even further over its main rivals in the period, with sales for the 12 weeks to 2 January growing to £5.3 billion, giving it a whopping 29 per cent of the total UK food retail market.
According to Edward Garner, communications director at TNS Superpanel, this represents a 13 per cent increase in value sales year-on-year, taking Tesco's share to record high.
"Asda also achieved a record share of 17.1 per cent, helped by seasonal sales of non-foods," said Garner, adding that Waitrose had also benefited from the extra stores acquired from Morrisons to deliver an 18 per cent sales growth and a record share of 3.6 per cent.
The TNS data also confirmed the slow down in the rate of decline at Sainsbury. "Although the group's share currently stands at 15.9 per cent (down from 16.3 per cent a year ago), Christmas is traditionally a strong time for the outlet and the share duly rose for the fourth period in succession in the run-up to Christmas."
In total, UK food retail sales increased by 1 per cent in the 12-week period to £29.6 billion, according to Garner.