Sainsbury's has admitted its supply chain challenges continue to contribute extra cost to its struggling food business in its latest trading statement yesterday.

Like-for-like sales excluding petrol in the four weeks to January 1 fell 0.4 per cent and its equivalent third-quarter sales fell 1.2 per cent.

Chief executive Justin King continued to focus on IT distribution system problems that dogged the supermarket towards the end of last year.

He highlighted extra measures, particularly around product availability and store labour, citing the £550 million spent on associated exceptional costs necessary to ensure shelves were full for Christmas.

'Our customers are starting to see the benefit. The additional costs for labour, depots and waste, which we announced on 19 October 2004, continued throughout quarter three and will continue in the fourth quarter,' said King.

The company reverted back to manual processes for stock level management and hired 3,000 extra in-store staff to reverse in-store stock shortages while it scraps £120 million worth of supply chain assets and £140 million in related IT systems.

King did also say, however, that it was preparing to close the additional depot it had re-opened in preparation of Christmas demand.