Sainsbury adds Morrisons stores, Asda expands

Related tags Sainsbury Asda Tesco

British retailer Sainsbury has acquired 14 supermarkets from
compatriot Morrisons - including the original Morrisons store in
the Yorkshire town of Ripon. But the group still lags behind rival
Asda, which also announced expansion plans this week.

Apart from the Ripon store, all the outlets acquired by Sainsbury are former Safeway supermarkets, part of a package of stores which Morrisons is obliged to sell in order to gain approval for its takeover of Safeway.

Justin King, Sainsbury's chief executive said that the acquisition was part of a new strategy of focusing on growth in the core UK market. "When we announced the sale of Shaw's, our US supermarket business on 26 March, we indicated that we would use a proportion of the funds generated to develop further Sainsbury's core UK supermarkets business to strengthen our market position and deliver future growth.

"These stores from Morrisons give us a great opportunity to increase our selling space in the UK by over 400,000 sq ft, a little under 3 per cent. Such opportunities have become increasingly rare and we are delighted to secure these stores and look forward to introducing Sainsbury's products and services to new areas and customers."

The stores are located primarily in the Midlands and the north of England - where Sainsbury currently has relatively few stores - and had a net book value of £110 million at September 2003. Each store acquisition is conditional upon approval from the Office of Fair Trading.

With a typical Yorkshire lack of sentimentality, Morrisons said it had decided to sell the original Morrisons store in Ripon instead of a newly converted Safeway outlet in the same area, with the more modern outlet considered the most likely to generate profits in the long term.

Even with the extra 400,000 sq ft from the Morrisons stores, and the recent addition of the Bells convenience store chain in the north east of England, Sainsbury still has its work cut out to win back market share from Asda, which last year overtook it as the number two food retailer in Britain behind the ever-dominant Tesco.

Sainsbury's recent strategy - revamping its entire store portfolio, moving rapidly into the convenience sector, launching a major non-food range, among others - has been criticised in some quarters as lacking real focus - a quick fix designed to kickstart an ailing business and set it on the path to growth in one fell swoop.

It is still too early to tell whether Sainsbury's strategy is the right one or not - though the restructuring programme is due to be completed this year and the time is fast approaching when the company's management will no longer be able to blame the upheaval this has caused for its financial woes.

And of course, the rest of the industry has not been standing still while Sainsbury struggles with its image. The Morrisons/Safeway deal has left Sainsbury with a strong new player snapping at its heels, while Asda's tie-up with US giant Wal-Mart - and in particular the adoption of its low price policy - helped power it ahead of the one-time market leader.

Asda has been relatively circumspect in its expansion - at least in comparison to Tesco, Sainsbury and Morrisons - with its growth coming from increasing like-for-like sales (6-8 per cent in the first quarter of the year, according to the company, slightly higher than Tesco with 7.5 per cent but below that of Morrisons with 9.7 per cent). Sainsbury is due to give a trading update next week, but its quarterly growth in recent periods has been around 1 per cent.

But Asda's (failed) bid for the Safeway chain shows that it has the cash and the commitment to grow its business through acquisition or development as well, and the company has this week unveiled plans for a £400 million store-opening programme which will include four new stores and the extension of a further 21, including the company's first purpose-built, two-level store in Huyton on Merseyside.

This two-storey approach to expansion is being used increasingly by Asda to circumvent Britain's tough planning laws. Since the extension does not take up any more floor space, it has proven to be a more effective means of obtaining planning permission for the stores.

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