Sainsbury reduces spending to fund £150m price cuts J Sainsbury is shelving new stores and cutting costs as it battles to stem the tide of Britain's discount supermarkets by spending £150m on lowering prices. The UK's third-biggest supermarket group after Asda and Tesco plunged to a loss before tax of £290m in the six months to September 27, compared with pre-tax profit of £433m last time. The loss came after £665m of charges, primarily related to a writedown on the value of its property portfolio. Sainsbury maintained its interim dividend at 5p a share, but said its final payout was likely to be lower as it introduced a more cautious dividend policy and expected profitability to be lower in the second half of the year than the first. The group warned that sales from supermarkets open at least a year would be "negative for the next few years." Unveiling the results of a strategic review, new chief executive Mike Coupe - who succeeded Justin King as chief executive in July - defended the amount Sainsbury intended to invest in price, which is dwarfed by the spending plans of some of its big four rivals. He said the price cuts would be "targeted" in branded and commoditised lines, such as toilet rolls and nappies, so that Sainsbury could get "real bang for our buck." Sainsbury will also improve the quality of 3,000 own-brand products, for example putting more meat in ready meals. "The whole basis of our strategy is to be a better us," said Mr Coupe. Some analysts questioned whether the investment would be enough given expectations of a price onslaught from Dave Lewis, the new chief executive of Tesco. Bryan Roberts of Kantar Retail said: "Concerns remain that Sainsbury will be first in the firing line when the sleeping giant Tesco reawakens in 2015, adding further pressure to Sainsbury's already relatively scrawny margins." But Mr Coupe insisted his plans were robust enough. "We are very aware that there is somebody limbering up in the changing room," he said. Sainsbury is also facing increased competition from the German discounters, Aldi and Lidl, which are forging into the retailer's heartland in southeast England and appealing to cash-strapped middle-class shoppers with premium products. To pay for its lower prices, Sainsbury set out a target of £500m of cost savings over the next three years and said it would cut capital expenditure to between £500m and £550m a year over the same period, almost half of its previous spending target. John Rogers, finance director, insisted that Sainsbury had enough financial flexibility, and ruled out a rights issue. "We have been looking at a number of scenarios," he said. We don't foresee a need to raise equity going forward. The group's shares fell 1.1 per cent to 266.1p on Wednesday. Analysts estimated that the price cuts, together with the prediction of negative sales from supermarkets open at least a year, would hit profits over the next few years. Sainsbury said it had taken a charge of £287m for store sites that would not now be developed, and another £341m writedown in relation to unprofitable and marginally profitable trading stores. Mr Rogers said the charges related to about 40 schemes that would no longer go ahead, and about 40 currently trading stores. Mr Coupe said the supermarket had identified that about a quarter of its stores would have excess space in the next five years. It could fill this with clothing and homewares, travel money or phone shops. But he said Sainsbury could work with "carefully selected concession partners," in addition to Timpson and Jessops with whom it already has a relationship. The group has teamed up with Scandinavian retailer Dansk Supermarked to bring Danish discounter Netto back to the UK, with its first Netto store opening in Leeds last week. It is possible some Netto stores could fill this surfeit of space. Sainsbury warned that given the investment in price, as well as a strong performance from the bank and cost savings that were unlikely to be repeated in the second half, it expected "profitability to be lower in the second half than the first half." Underlying profit fell from £400m to £375m in the six months to September 27. Retail sales excluding VAT fell 1.5 per cent to £12.5bn. Sainsbury also revealed on Wednesday that it was looking at a much smaller convenience store at 750 to 1,000 square ft, less than half the size of a traditional small store, which could open another front in the battle for shoppers. "It throws up lots more opportunities in terms of space, particularly in urban locations," said Mr Coupe.