±±¾©Èü³µpk10

The slogan could soon need changing. 'Making Life Taste Better' may have been Sainsbury's corporate strapline for several years now, but for the supermarket chain's embattled chief executive, Sir Peter Davis, business could hardly be less palatable.

Last week, the UK's second-biggest grocery retailer announced first-quarter trading figures that shocked the City by coming in below analysts' worst expectations. Like-for-like sales growth of just 0.3% and an immediate fall in the share price were ingredients that even Jamie Oliver would have struggled to make appetising.

Caught between upmarket food retailers Waitrose and Marks & Spencer and everyday low-price chains Tesco and Asda, many retail experts think Sainsbury's is stuck in an area of middle ground.

Its number two position is under threat from Asda and parent Wal-Mart, and it looks highly unlikely to win the battle to buy Safeway.

Its participation in the Nectar loyalty scheme has yet to provide a platform for regaining lost momentum, though the firm believes it will be fairer to judge its benefits in the longer term.

Sainsbury's has also struggled to make an impact in the lucrative non-food area. It hopes to rectify the situation this autumn with a major push into the sector, but its competitors have a head start.

And what of Oliver? The company recently signed a one-year extension to its deal with the Naked Chef, and stands by its continued reliance on him, pointing out his popularity.

But with Sir Peter stepping up to the chairman's seat next March, the pressure is clearly on if his tenure as chief executive is not to be remembered as the one in which Sainsbury's lost touch with its fiercest rival, Tesco.

We asked Nick Adderley, formerly group brands director at Somerfield and now founder of consultancy Addviser, and Andy King, former marketing director of Mothercare and WH Smith, how Sainsbury's can be restored to its former glory.

VITAL SIGNS
UK's top four supermarket retailers
              Market   Annual pre-tax    Stores        Adspend
             share %    profit pounds                   pounds
Tesco            26.9            1.4bn       800     33,815,707
Sainsbury's      16.8             667m       536     48,721,159
Asda             16.3              n/a       260     24,884,587
Safeway           9.5           335.2m       480            n/a
Market share figures: Taylor Nelson Sofres,12 weeks to 22 June 2003;
Asda profit not released by Wal-Mart

DIAGNOSIS

Nick Adderley

To paraphrase Mark Twain, are the stories of Sainsbury's' imminent demise somewhat exaggerated?

This so-called 'failing' business only managed to increase its profits by 10% in the past year while investing hundreds of millions in its infrastructure. It continues to break new ground in bringing interesting food to its customers, and employs stacks of fantastically able people.

It also has the massive plus for UK shoppers of being called Sainsbury's, the food brand of all food brands.

Yet it faces some major hurdles if it is to have a profitable future.

It's not really Sainsbury's' fault that the world's best supermarket operator is fighting toe-to-toe with the world's largest for UK market dominance. High-margin non-food is not something Sainsbury's has had much share of. It may well soon become only the fourth-biggest grocer in the UK.

In the long term, the real problem is a lack of scale to compete against Tesco and Asda, and too much scale to be a niche player. Without the family shareholding, it is not too much of a stretch of the imagination to see Sainsbury's as part of Carrefour or Ahold.

Andy King

Whenever I think of Sainsbury's I'm reminded of the saying 'Good in parts, like the curate's egg'.

The award-winning Hazel Grove store in Manchester was certainly a bold attempt to break the mould of the ubiquitous supermarket format, while the urban 'Central' concept seems to meet the convenience of the cash-rich, time-poor working customer - even if there is precious little difference between Sainsbury's Central and Tesco Metro and Marks & Spencer Simply Food.

Unfortunately there are also bad parts of the egg. With the exception of a few Savacentres, the bulk of the Sainsbury's estate is simply not big enough to allow the introduction of higher-margin non-food ranges that drive top-line sales in their own right, as well as traffic to the store.

Perhaps most importantly, Sainsbury's seems to be caught in the classic middle ground of trying to be all things to all people. Is it, as seems to be the case, competing with Waitrose and Marks & Spencer for quality or with its traditional rivals Tesco and Asda on price?

TREATMENT

- Do not ignore the price perception problems or get Jamie Oliver to talk in a Manchester accent to attract consumers from the North.

- Support internal risk-takers and entrepreneurs rather than hindering them with Sainsbury's' treacle and process management.

- Do everything possible to make non-food work.

- Understand the customer better; then either fight the more premium food retailers in terms of range, price, promotions, service and in-store environment or compete more heavily on price.

- Find innovative ways to increase footage (like Homebase's use of mezzanine floors) to expand the non-food offering.

- Be bold - if a concept works, roll it out at pace.