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Last Updated: Thursday, 6 October 2005, 21:53 GMT 22:53 UK
Is Sainsbury's tasting the difference?
By Clare Matheson
BBC News business journalist

Justin King
Mr King is pushing to make Sainsbury's great again
Last month Sainsbury's unveiled a new slogan, telling its customers to Try Something Different.

In fact, it's been carrying out that plan for 12 months.

And what a difference a year makes.

A year ago, new chief Justin King unveiled a three-year plan dubbed "Make Sainsbury's Great Again", vowing to boost sales by 2.5bn during the period.

And it seems there are heartening signs he has started to deliver results. Sales have risen, shelves are stocked and staff morale is on the up.

'On track'

"There's no doubt, they've turned the corner," says Hilary Cook of Barclays Stockbrokers.

Analysts expect like-for-like sales at the group to rise by 1.5%-4%, while the group's market share has risen to 15.74% from 15.4% last year according to market analysts TNS.

I think it's going very well these things are enormously challenging and even more challenging against the current trading background
Richard Hyman, Verdict Consulting

They even managed recently to beat arch-rivals Tesco and Asda, scoring The Grocer magazine's cheapest shopping basket for three weeks running.

"I think the momentum is definitely with them," says Sanjay Vidyarthi, retail analyst at Teather & Greenwood. "Market share suggests they are on track and I can foresee growth of 1.5% to 2%."

With better-looking stores and new ads, he says: "Operationally they're doing all the right things."

'In the detail'

So what's changed?

Under the three-year plan, Mr King has dramatically scaled back the group's ambitious plans to automate parts of its supply chain - a 3bn "improvement" overseen by its former chief executive Sir Peter Davis which Sainsbury's acknowledges failed to get products onto the shelves.

Sainsbury also set its sights on toughening competition with its cheaper - and larger - rivals Tesco and Asda by slashing prices.

But it hasn't been an easy ride. Stores have closed, head office jobs have been cut and the firm suspended the roll-out of its petrol station-based convenience stores.

TNS UK supermarket share figures for 12 weeks to 14 August 2005

The group also left investors up in arms when it announced the changes would cost 550m, almost wiping out full year profits, and slashed its dividend in half.

But the store has played to its strengths - not least customers' trust that it sells quality food.

In some locations, this means Morrison's recent takeover of rival Safeway has actually worked in Sainsbury's favour.

"Morrison's format works very well in Yorkshire but not in Surrey, and the range of products means a Safeway customer's natural home is Sainsbury's," says Jonathan Pitkanen, Fitch retail analyst.

Safeway store
Sainsbury's attraction to Safeway customers won't last for long

And the campaign by Sainsbury's public face, celebrity chef Jamie Oliver, for healthier school dinners has effectively delivered millions of pounds of free advertising for the group.

"I think it's going very well, these things are enormously challenging and even more challenging against the current trading background that's very difficult," says Richard Hyman, Managing Director of Verdict Consulting. "Hats off to Justin."

Perhaps, Mr King has finally taken Sainsbury's boss Lord John Sainsbury's mantra - "retail is in the detail" - to heart.

Storm clouds ahead

But while analysts are full of praise for the turnaround, they have warned that Sainsbury needs to be on its guard amid an ever-meaner retailing environment.

"I would say I'm 100% categorically certain that it's not that it could get worse - it will get worse," Mr Hyman adds.

"Structural changes mean it's become much more competitive, demanding and challenging."

Even Asda has taken a pummelling in recent months, with some arguing it has saturated the cut-price market.

For Sainsbury's, lower prices to face up to both Asda and Tesco are likely to bite into margins and thus profits.

Interestingly the lack of stores are Sainsbury's own fault
Sanjay Vidyarthi, Teather & Greenwood

Elsewhere, experts believe Sainsbury's may also have missed the boat in the key growth market of the convenience store format.

Tesco has planning permission for a huge number of outlets including a swathe of Express format stores across the country - many forecourts bought from Safeway.

Mr King joined with Asda in September to attack Tesco's dominance in the market, demanding changes to planning rules to stop the market leader gobbling up 40% of the UK market.

Market mover

But this, analysts say, could be a case of sour grapes.

"Interestingly the lack of stores are Sainsbury's own fault," says Fitch's Jonathan Pitkanen.

Tesco Express store
Sainsbury's won't be able to play catch-up with Tesco, experts say

"Tesco bought TNS to get convenience stores and Co-op has been ahead of the game buying Alldays."

He believes convenience stores will soon take a big bite out of the market, as they become increasingly popular with the cash-rich, time-poor set who seek the closest outlet.

And Sainsbury's hopes for action on anti-trust grounds could also be short-lived.

"Every so often the Competition Commission examines the supermarkets, and in the next three or so years that's going to be the next big bean fight: deciding what constitutes a supermarket," Mr Pitkanen says.

Convenience stores are likely to be part of that, he says.

"But Tesco has been very clever and bought up the formats before the review, so they can't be ordered to sell them off."

Sainsbury's polishes up its image
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Sainsbury's hails sales progress
23 Jun 05 |  Business
Profits collapse at Sainsbury's
18 May 05 |  Business
Improved supply lifts Sainsbury's
24 Mar 05 |  Business
Sainsbury's heads back to basics
19 Oct 04 |  Business

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