In what’s an increasingly cut-throat market, FTSE 100 retailer Sainsbury’s (LSE:SBRY) has been making impressive progress and in the last year (to February) delivered its greatest market share gains for more than 10 years.

Sales rose 4.2%, or 3.2% on a like-for-like basis, reflecting what its chief executive says is “a winning combination of value, quality and service that customers love“. To celebrate, it announced plans to reward shareholders with £250m of special dividends and a share buyback programme of £200m.

Britain’s second-largest supermarket has plans to build on its recent progress, having acquired 14 new supermarket sites to expand its store estate. Market conditions are tough, but the grocer’s heavy investment in prices, products, and the pulling power of its Nectar loyalty programme continue to attract yet more punters.

Reflecting its recent successes, Sainsbury’s has seen its share price rise 10.1% over the last year. But can the Footsie grocer continue its robust momentum? I’m not so sure.

Competitive pressures

As I say, the business has performed robustly in an environment of bloody competition. The question is whether it can continue to do so as value chains Aldi and Lidl grow their estates, its rivals open swathes of new convenience stores, and fellow ‘Big Four’ operator Asda kicks off a bruising new price war.

Reflecting these pressures, Sainsbury’s has said it expects annual underlying operating profit to flatline at £1.1bn this financial year.

Like its rivals, Sainsbury’s can continue heavily discounting to defend its in-store footfall and online sales volumes. But this could come at a catastrophic expense to its already wafer-thin retail margins (this was 3.17% in fiscal 2025 on an underlying operating basis).

Other threats

The pressure on the retailer to cut prices is especially great as the cost-of-living crisis endures. And unfortunately, some economists suggest that consumer spending power may remain weak for the rest of the decade, if not longer.

According to think-tank Resolution Foundation, typical household incomes will rise just 1% between 2025 and 2030. And for the lowest earning households, income’s expected to drop by the same percentage over the five years.

This outlook’s especially worrying for Sainsbury’s, given its huge Argos general merchandise division which is more vulnerable to consumer conditions than food retail.

As if this wasn’t enough, food retailers also faces sales danger as weight loss jabs like Ozempic become increasingly popular, limiting demand for sweet treats and other guilty pleasures.

Some 4% of British households now use such medicines, according to Kantar Worldpanel.

But as its head of retail and consumer insight at the company says: “That’s almost twice as many as last year, so while it’s still pretty low, it’s definitely a trend that the industry should keep an eye on as these drugs have the potential to steer choices at the till“.

Buyer beware

I don’t believe that these risks are currently reflected in the valuation on Sainsbury’s shares. Following those recent price gains, they trade on a forward price-to-earnings (P/E) ratio of around 13 times, which is higher than the FTSE 100’s broader average.

As a result, I think investors should consider buying other momentum shares instead.