The recovery of Sainsbury's exceeded expectations after it posted its fifth quarter of sales growth in a row.
The retailer, buoyed by the success of its Try Something New campaign, weighed in with a like-for-like sales rise of 5.3 per cent for the 12 weeks to last Saturday, against hopes in the City for a figure closer to four per cent.
Chief executive Justin King said Sainsbury's had attracted an additional one million customers to its stores in the past six months, as the chain benefits from improvements made in the first year of its recovery plan.
Mr King said: "The sales growth shows that customers are noticing the many improvements we have been making to our business."
The update carried extra significance as analysts believed annual sales growth would be harder to achieve because of comparisons with the start of the Making Sainsbury's Great Again recovery plan a year ago.
But like-for-like sales growth showed an improved trend, with the figure of 5.3 per cent bettering the 5.2 per cent seen in the previous quarter and the 2.1 per cent achieved in the first half of the financial year. Including petrol sales, like-for-like growth stood at 5.7 per cent, while sales across the group improved 6.7 per cent.
Recent data from research group TNS showed Sainsbury's accounted for 16.2 per cent of grocery sales in the UK, just behind second-placed Asda but a long way from the 30.4 per cent controlled by industry leader Tesco.
As well as the benefit of its Try Something New Today campaign - advertised by celebrity chef Jamie Oliver -Sainsbury's has reported higher sales of organic produce and a surge in demand for its premium Taste the Difference range.
The Sainsbury's fightback -following the first loss in its 135-year history - has included the recruitment of more staff and has come despite a 2.2 per cent fall in grocery prices over the past quarter.
As part of the Making Sainsbury's Great Again initiative, the chain aims to add £2.5 billion to total sales by March 2008.
"This was miles ahead of expectations," said analyst Philip Dorgan at broker Panmure Gordon & Co.
Mr King said he was comfortable with market consensus pretax profit forecasts for the year of £260 million and cautioned that some analysts may have underestimated the strength of the recovery.
"A lot of people felt the gains of the first four quarters were low-hanging fruit, but this is now growth on growth. We've got on the front foot, improved the quality and I think people just underestimated us," he said.
The turnaround follows a protracted period of dwindling market share that saw Sainsbury fall from first to third among UK foodsellers in the space of ten years.
It said it had attracted an additional one million customers per week over the past six months.
Sainsbury aims to boost sales by £2.5 billion by 2008 by cutting prices, improving product availability and investing in service.
It seems likely that Sains-bury will soon reclaim the No. 2 slot from Wal-Mart's Asda - but Asda is fighting back with a renewed focus on low prices.
The result is price deflation and that could have an erosive effects on margins.
Chief financial officer Darren Shapland said the firm had no current plans to take advantage of the potential tax breaks offered by the new Real Estate Investment Trust scheme. ..SUPL: