From bad to worse for Sainsbury

- Last updated on GMT

Related tags: Sainsbury, Morrisons, Sainsbury's

Sainsbury has been dealt a double blow this week, with the news
that its hostile bid for 171 Somerfield stores is likely to come a
cropper at the hands of the regulators followed by the even more
devastating evidence that it has been overtaken by Asda as the UK's
number two retailer.

It has been a bad few days for Sainsbury​, the British supermarket group. Just last week the group announced​ disappointing figures which showed that its restructuring plan still had a long way to go before showing positive results, and this week the company has faced two more setbacks.

The first is the announcement by the UK Department of Trade and Industry that Sainsbury's hostile takeover bid for 171 Somerfield​ stores is to be referred to the Competition Commission.

The company made a bid to acquire the stores as part of an unsuccessful attempt by two retail entrepreneurs, John Lovering and Bob McKenzie, to wrest control of the recovering supermarket group away from its current management, headed by John von Spreckelsen.

Under UK stock market rules, the fact that the original attempt failed means that Sainsbury will not be able to make a new offer for the stores - most of which are convenience outlets with an average floor space of around 6,000 square feet - for at least six months.

But with Somerfield staunchly refusing to sell the stores, Sainsbury's chances of success were already slight before the decision to refer the proposed takeover to the regulators.

Sir Peter Davis, Sainsbury's chief executive, said he was disappointed with the decision to refer the proposed deal, adding that the company would "reflect on the issues raised in the report once it has been published".

In reality, this means that the company is almost certain to drop its attempt to acquire the stores, but the decision could in fact have further reaching implications. Sainsbury is one of several leading retail groups lining up to bid for Safeway - a much bigger deal than the Somerfield one - but its chances of winning regulatory approval for such an offer now seem even more remote than ever.

Gillian Moore, spokeswoman for Sainsbury, said that it was "not appropriate to speculate [on the Safeway takeover] as the matter is now with the Competition Commission who have until 12 August to give their recommendation to the Secretary of State for DTI".​ She did, however, add that there was unlikely to be just one outcome from the Commission's investigation - an indication that the official line, at least, is that Sainsbury is still confident of coming away with something from the Safeway deal.

Overtaken by Asda

The most widely-tipped candidate to win the Safeway takeover battle is Morrisons​, the company which sparked off the whole bidding process in the first place by making an offer to buy the company. But the most popular choice among shoppers appears to be Asda - at least according to a recent study​ by market analysts Mintel.

Asda​ is in fact becoming increasingly popular with shoppers across the UK, and it is responsible for the second bit of bad news for Sainsbury. The most recent sales data from market analysts TNS shows that the Wal-Mart subsidiary has overtaken Sainsbury as the second largest supermarket group in the UK with a market share of 17 per cent in the four weeks to 20 July, up from 16.1 per cent a year earlier, compared to 16.2 per cent for Sainsbury, down from 17.1 per cent.

Edward Garner, communications director at TNS Superpanel, said:"This is in line with a clear long-term trend. Our data has been showing a consistent growth from Asda over the last 10 years, with decline from Sainsbury's over the last six years. This is a considerable shake-up at the top of the British supermarket rankings."

Sainsbury was for many years the undisputed leader of the UK supermarket pack, but things began to go wrong in 1995 when it was overtaken by arch rival Tesco. It was perhaps this fact more than any other that prompted Sainsbury's management to begin the major overhaul of the business which is still underway today, but with Tesco stretching further ahead each year (it currently has around 27 per cent of the market) and Asda now taking over the number two spot, questions will have to be asked about the direction that the restructuring has taken.

Sainsbury was quick to comment on the figures. "Asda's position has been driven by its non-food offer as these figures are based on total sales, not just food. Sainsbury's remains the UK's second largest grocer with 15.5 per cent of the grocery market compared to Asda's 13 per cent.

Since Asda was acquired by Wal-Mart it has been a dominant force in shaping the market for non-food products sold at supermarkets. Sainsbury's is launching a new non-food offer from this autumn."

TNS also stressed the importance of non-food for Asda, and added that Sainsbury is still particularly strong in the fresh food sector.

Nick Agarwal, spokesman for Asda, agreed that the figures had been boosted by non-food sales, but stressed that that was not the real reason for the improvement.

"Obviously we're pleased that this month's TNS figures show we've just nipped ahead of Sainsbury's for the first time - but this includes non-food in which we have long established pedigree. While we're pleased that more and more customers seem to like our prices and service, overtaking Sainsbury's has never been our goal - we'll only continue to grow and be successful if we keep focusing on the individual needs of our customers, store-by-store."

That, above all, is what Sainsbury has failed to do during its restructuring - the company itself admitted as much last week - and the chain must now take some serious decisions about where it wants to position itself. Waitrose and Marks & Spencer already hold the high ground, Asda offers excellent value for money and Tesco has clearly got the best quality:price ratio, so it is hard to see where Sainsbury can find a niche for itself.

Related topics: Market Trends

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