New CEO as Sainsbury continues to underperform

Related tags Sainsbury Asda Morrisons Tesco

Sainsbury has appointed a former Marks & Spencer executive as
its new CEO, replacing Sir Peter Davis who will become chairman.
But Davis' ambitious attempt to pull the company out of the
doldrums continues to misfire, with first half sales growth of just
1 per cent.

Sainsbury​, the UK supermarket group, has appointed Justin King - a former Marks & Spencer executive - as its new chief executive, replacing Sir Peter Davis who moves to the post of chairman.

But the company's latest set of interim results show that the plan concocted by Davis and outgoing chairman Sir George Bull to restore Sainsbury to its position as the leader of the UK food retail sector over the last five years is still falling far short of this goal.

In a similar vein to the first quarter figures released in July, Sainsbury has today reported first half sales up just 1 per cent to £9.8 billion (or 2.1 per cent at constant exchange rates). In contrast, arch rival Tesco said in September that its first half sales had grown by 17 per cent to £14.9 billion.

Davis, not surprisingly, chose to focus on a more impressive figure - underlying pre-tax profit growth of 7 per cent to £366 million - which he said had been achieved despite the turbulent restructuring of the UK supermarket business and the modernisation of the supply chain.

But this excluded exceptional items of £36 million and amortisation of goodwill of £7 million, including £8 million spent on a failed bid for the Safeway chain. Full year exceptional charges are likely to be £55 million, in line with the previous year, but with little appreciable improvement in the company's performance to offset them.

This is the third year of Sainsbury's restructuring programme, and of promises that things will improve in the subsequent year, and Davis' excuses are becoming a little repetitious.

"During this year our priority has been on improving our operational capability so that we are in a position to leverage benefits in 2004/05. Implementing any one element of our transformation programme would have been significant but doing them all at the same time has been an enormous exercise,"​ he said.

"We have come a very long way in the past three years and it is vital that we concentrate on delivering this substantial programme."

While most observers would have expected to see greater improvements in the company's performance earlier on in the five-year restructuring process, a failure to produce any next year will surely cast the shadow of death over the one-time UK market leader.

Sainsbury has recently completed the conversion of its store systems, refitted around 80 per cent of its store portfolio, introduced an extensive range of non-food items, revolutionised its logistics network and revitalised its product ranges - all of which should, in theory, lead to a significant improvement in its fortunes in the next year. But the lack of real progress so far suggests that even this massive overhaul may still leave Sainsbury lagging behind both Tesco and Asda, as well as coming under increasing pressure from the Morrisons/Safeway combination.

Again, Davis' rhetoric sounds less than convincing. "'It is important that we maximise the strength of the Sainsbury's brand. The store format trials we have conducted have provided a clear vision of the opportunity that lies ahead for a company that can differentiate itself from the other main supermarket players."

The problem is that Sainsbury is failing to do exactly that - differentiate itself. The company's overhaul will effectively bring its operations into line with those of the other leading players but will do little, at first glance, to make it stand out from the crowd.

By its own admission, Sainsbury has lost a lot of custom during the three year revamp, with many customers put off by the constant refitting of their local outlet. Winning these customers back from Tesco, Asda or any of the other leading supermarket groups is vital, but there is little so far in what Davis has revealed to suggest that this will happen.

Even moves to combat Sainsbury's perennial problem - that of being more expensive than its rivals - are unlikely to be sufficient, with most observers believing that prices will continue to fall across the supermarket sector, especially as the newly enlarged Morrisons flexes its muscles.

Related topics Market Trends

Related news

Follow us


View more