Welbeck has enjoyed an excellent start to the season, scoring three goals for the Gunners and starting all five of their Premier League games.
Meanwhile, Sanchez, who had a deadline day move to Manchester City fall through, has not yet completed 90 minutes in the Premier League after starting pre-season late, but he played the full match against Cologne in the Europa League and Doncaster Rovers in the Carabao Cup on Wednesday night.
Welbeck now faces a short period out after picking up a groin injury against Chelsea, but Nicholas is not surprised to see the England striker starting ahead of the Chile international.
"Playing against Chelsea last weekend, you knew Welbeck had to start in front of Sanchez," Nicholas told 'Sky Sports'.
"At the moment Alexis Sanchez doesn't fit in. Sanchez is the best player on his day but at the moment if Welbeck was fit, he starts."
When asked if Welbeck should be a guaranteed starter, he added: "Yes he is because of his pace and his movement. He's not the most natural finisher, and he will frustrate the life out of a lot of people but he stretches defences with his pace and movement every day of the week.
"That's why he played him at Chelsea. There was a reason behind it. He scored two goals the previous weekend and his pace and movement helped Alexandre Lacazette, who is a proven No 9. We just don't know how committed Sanchez is since his move to Manchester City collapsed.
"The options Arsenal require up front are pace and movement and Welbeck gives you that. If it's Welbeck up closer to Lacazette and then Welbeck on the left then so be it."
Sanchez and Ozil both missed out during Arsenal's 0-0 draw with Chelsea at Stamford Bridge last sunday, a game in which Welbeck and Alex Iwobi received a lot of praise for their disciplined performances.
Nicholas thinks their displays were a positive sign for Arsene Wenger: "If Arsenal were to let Sanchez and Ozil go, of course they would lose a lot of talent, but is it replaceable? Of course it is. Alex Iwobi, Reiss Nelson and the other youngster have got the potential to come in.
"It's not as good as the two superstars but there are no guarantees for any footballer. If you are not doing the business in the big games, then you can be put on the bench.
"The Chelsea game was an eye opener," he added. "It was the best most balanced performance Arsenal have had in a long time. We've been waiting for a long time to see a performance like that and it was without Sanchez and Ozil starting.
"It's about playing with a bit of discipline. Iwobi didn't play the game he usually likes to play but he was disciplined. He had to do the hard yards and that's what Arsenal haven't been doing with the superstars in the team. Players have to adjust to what the demands are in certain big games."