The last 12 months have been tough for Sainsbury as it overhauled its entire store portfolio and back office operations in a bid to kickstart sales. With the end of this so-called Business Transformation Programme finally in sight, the company is hopeful of an upturn in its fortunes in 2004.
But the big question now is how long new chief executive Justin King will be given to turn things around. According to a report in Sunday's Observer newspaper, KKR is showing a "strong interest" in the company because it believes the Sainsbury family shareholders are finally prepared to sell their 38 per cent stake after profiting from dividend payments of more than £100 million in the last year alone.
There will obviously be a honeymoon period for King, who nonetheless remains downbeat about the likelihood of any major improvement in the short term. The upheavals which have affected so many Sainsbury's stores as a result of the restructuring programme have prompted many of the chain's loyal customers to switch to rival stores, and King will have his work cut out to win them back, especially given the expected trend towards lower prices across the UK retail sector.
The Sainsbury family is unlikely to think about selling up just yet, and the report suggests that any bid from KKR (which denies any interest in the chain) is at least a year away. - enough time to assess whether King can rescue the company's reputation, even if a complete turnaround is unlikely in such a short space of time.
If a bid were to come, the report suggests that it would have to be at least £6 billion, and that former Asda boss Archie Norman would be a prime candidate to be put in charge of the company. Norman made so secret of his interest in King's job, but and is keen to return to the retail arena after a stint as a politician. Norman was widely credited with paving the way for Wal-Mart's takeover of the Asda group, a move which last year contributed to Asda overtaking Sainsbury as the number two multiple grocer in the UK.
The report suggests that if KKR bought the company, it would also sell and lease back Sainsbury's stores, a move which would allow it to reduce the company's debts.
KKR was one of several original bidders for the Safeway chain in the UK last year - bidders which also included Sainsbury - but it withdrew early from the race which was eventually won by Morrisons. The regulators were keen to ensure that the status quo of four major multiples was maintained and thus blocked bids from Sainsbury, Tesco and Asda. Should Sainsbury eventually come on the market, the possibility of a UK supermarket bidder is therefore remote.
A financial bidder such as KKR is a far more likely outcome - despite KKR's current protestations that it is not interested - but an approach from a foreign retailer could also not be ruled out. But most major international retail groups would probably see greater profit possibilities in less developed - and less competitive - markets than the UK.
Whatever KKR's interest, such has been Sainsbury's slide down the retail rankings in the last few years that the once unthinkable sale of the founding family's shares is now being seriously considered. But with like-for-like sales growth running at around 1 per cent (well below the likes of Tesco and Morrisons) and the company already warning that profits are unlikely to reach their target this year, financial prudence could finally take precedent over family loyalty and tradition.