Sainsbury's ends store space race

Supermarket joins rival Tesco in slowing pace of store openings this year despite upbeat annual profits

Sainsbury's plans to expand its store space by only 5% this year. This follows Tesco's announcement that it would create fewer big shops. Photograph: Justin Kase/Alamy

Sainsbury's has signalled the end of the space race as it joined rival Tesco in announcing a slower pace of supermarket openings in the coming year.

Its chief executive, Justin King, said it would expand its store space by just 5%, around 1m sq ft, this year, against the 1.4m sq ft, or 7%, it added in the financial year which has just ended. King denied the retailer had called the top of the market. He said its growth rate was returning to "normal" after three years in which it had grown in size by more than 20%. In the wake of its shock profit warning last month, Tesco said it planned to create fewer big stores and would concentrate on opening smaller food outlets and developing its websites.

"This signals the end of the space race," said Philip Dorgan, an analyst at Panmure Gordon. "The focus across the sector will now shift to increasing shareholder returns, which is good news for share prices." The shares closed up 4p at 301.3p.

The update came as Sainsbury's reported a better than expected 7% increase in annual profits to £712m on sales of £22.3bn in the year to 17 March. King said its Brand Match price scheme – which guarantees to match Asda and Tesco on 14,000 branded goods – was helping it to win custom as were the money-off vouchers issued to its Nectar cardholders.

The profit rise represents a slowdown on the 9% increase a year ago but is still much better than Tesco, which recently suffered its first fall in UK profits for 20 years. Morrisons last week posted its first fall in like-for-like sales in seven years.

The supermarket price war has intensified in recent months after Asda launched a guarantee to be 10% cheaper than rivals, while Tesco staged its £500m Big Price Drop campaign. But Sainsbury's Brand Match scheme, launched in October, coupled with its Live Well for Less advertising campaign, had helped it outperform the grocery market with like-for-like sales finishing up 2.1% for the year.