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Monday, April 12, 1999 Published at 16:37 GMT 17:37 UK


Business: The Company File

A tale of two supermarkets

Sainsbury's is losing out in a bruising battle with Tesco

J Sainsbury, for so long the best-loved grocer in Britain, is in trouble.


The BBC's Amanda Harper: Competition between supermarkets has never been fiercer
The former king of the aisles has long since been dethroned - losing its position as Britain's biggest supermarket.

Now it appears that it has no chance of catching up with Tesco, the pretender to its crown.

The contrast between the fortunes of the two arch-rivals could not be greater.


[ image: Sainsbury's has little to shout about at the moment]
Sainsbury's has little to shout about at the moment
Sainsbury's has already announced that 230 jobs at its Savacentre operation are under threat and now 300 workers at its head office are to go as it desperately searches for a way out of its current problems.

This announcement came in the same week that Tesco unveiled 20,000 new jobs and an ambitious overseas expansion plan.

In fact Sainsbury's situation has got so bad that it is even in danger of being relegated from second position in the supermarket league table.

Decline and fall

It is a sad demise for a company with a long and famous history and had become synonymous with providing good quality food.

So what has sparked Sainsbury's dramatic decline and is there any way back?

It seems difficult to imagine now but at the start of the decade Sainsbury's appeared to be sitting pretty.


[ image: Sainsbury's shares have been a basket case in recent years]
Sainsbury's shares have been a basket case in recent years
It was the undisputed market leader. While other groups fell into financial difficulties as they struggled to cope with the threat of new cut-price European discounters, Sainsbury's continued to pick up market share.

The group's profits doubled between 1989 and 1993. However, in retrospect these halcyon days were to mark the beginning of the end to Sainsbury's dominance of the food retailing market.

In 1994 Tesco beat Sainsbury's in the race to buy supermarket chain William Low - giving it an important presence in the Scottish market.

By 1995 Tesco has overtaken Sainsbury's as Britain's biggest food retailer. The William Low deal certainly helped but that was by no means the whole story.

Supermarket sweep

Tesco proved adept at introducing a range of innovative new shopping services to entice customers.

It also launched a highly effective marketing campaign that made Sainsbury's look flat footed by comparison.

First there was the Clubcard, Tesco's loyalty card. Lord Sainsbury famously dismissed the idea as nothing more than an "electronic version of Greenshield Stamps".

He lived to regret that comment. Sainsbury's was forced to make an embarrassing U-turn and introduce its own loyalty card when the Clubcard became a roaring success.

The Clubcard was just one of a series of firsts for Tesco. It introduced a range of own-label economy lines, supermarket bank accounts and returned to the High Street by opening smaller Tesco Metro stores.

Sainsbury's was forced to play catch-up - with decidedly mixed results.

Bound up in red tape

While Tesco extended its lead at the top of the supermarket table, Sainsbury's was left languishing in its wake.

Analysts believe the group has been dogged by bureaucracy and an old-fashioned management style which has left it without the fleetness of foot enjoyed by its nimbler rival.

Now Tesco has stolen a march on the Internet - offering free access to its Clubcard members as part of a plan to create a successful e-commerce website.

To top it all Sainsbury's latest advertising campaign - which featured Monty Python comedian John Cleese shouting loudly about cheap offers - flopped badly. For a supermarket who has prided itself on quality - to shout about economy goods proved to be a a misguided tactic.

The group is still picking up the pieces from the marketing disaster which many analysts believe destroyed its credibility in the City.

Facelift

Over the past few years Sainsbury's profits and its share price have stalled.

Sainsbury's chief executive, Dino Adriano, is determined to salvage something from the wreckage.

He has wielded the axe at the company's Stamford Street head office on the south bank of the Thames.

The group's orange and brown logo and livery is also likely to receive a £100m facelift as Sainsbury's tries to position itself for the new millennium.

However, the future of the group looks uncertain.

There are rumblings that the Sainsbury family are becoming restless at the group's lack of success and may look to sell up and bail out.

There are even rumours that Sainsbury's could fall prey to a takeover bid.

Damage limitation

The jury is out on whether Sainsbury's can find a way out of its current predicament.

"Sainsbury's has to do something radical, just sacking managers is not enough - it needs to become more innovative," one City analyst told BBC News Online.

With competition in the food retailing market intense and the market under investigation by the UK competition authorities for over-charging customers, the road to recovery could by turn out to be a bumpy one lined with potential potholes.

The danger is that Sainsbury's has passed its sell-by date.



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