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Last Updated: Thursday, 5 October 2006, 23:01 GMT 00:01 UK
Sainsbury's chief cheers strong recovery
By Jorn Madslien
Business reporter, BBC News

Justin King
I think that what we stand for is increasingly what customers care about

Two years into a three-year recovery plan aimed at reviving Sainsbury's fortunes, Justin King sits in his headquarters and beams.

"There were a lot of people who said the brand was broken, that this business was not fixable," the 44-year-old supermarket chief says.

"But, broadly speaking, we've gone and done it."

Since Mr King took over at the helm, Sainsbury's has staged a remarkable recovery.

Six consecutive quarters of sales growth on the back of a distribution system that has been fixed have added 1bn to turnover, beefed up pre-tax profits to 267m in the 2005/06 financial year - a 12.2% rise on the previous year - and pushed the share price up more than 50% in two years.

Mr King insists Sainsbury's is now on a path of "genuine and sustainable growth".

Surprising success

An old hand in the UK retailing sector, Mr King has found that many of his current rivals are his former colleagues.

Among them is the chief executive of the UK's second largest supermarket chain Asda, Andy Bond, who this summer challenged Mr King to run a mile in seven minutes.

"Andy is a proper runner," grins Mr King, who worked with Mr Bond for 12 years.

Sainsbury's Local
Sainsbury's operates more small stores than its rivals

"I'm not a proper runner. I'm not built for speed."

Yet he accepted the challenge, and in doing so displayed both his highly competitive nature and a cunning ability to surprise.

"I was chuffed to do it," he says, and Mr Bond had to hand over 1,000 to Sport Relief.

Strong grocer

With one race behind him, Mr King is focusing on the next.

Indeed, he appears to be a little smug about the way that - although Asda is still ahead - Sainsbury's sales are growing faster.

"The objective was never to be number two or overtake Asda," he claims.

But were it to happen, Mr King acknowledges that it "would certainly raise a smile".

And he stresses that if one includes petrol sales - a much bigger deal for Sainsbury's than Asda - or look at food sales alone, then his group moves back into the number two spot.

Sainsbury's share graph

"It was only their strength in non-food that made the lines cross," Mr King says.

Sainsbury's strengths

When Mr King took over the top job at Sainsbury's, its leading rivals Tesco and Asda were both enjoying impressive growth in sales of clothes and electronic goods.

Following suit was widely seen as a good idea, though Mr King has since modified that ambition.

Non-food accounts for less than 10% of Sainsbury's sales. Since Sainsbury's stores are generally smaller than those of its rivals, thus leaving less room for goods other than groceries, that ratio is unlikely to change in the near future.

"We operate more smaller stores than anybody else," says Mr King.

Sainsbury's property portfolio was built up during the 1980s, when supermarkets averaged 20-30,000 square feet, compared with 40-50,000 square feet during the 1990s.

But although smaller, stores built during the 1980s also tend to be in or close to city centres.

"It's somewhere between making a virtue out of necessity," Mr King says.

"They are there and we want to trade them successfully - and it's about recognising that they are actually where people want to live and shop."

Work-life balance

But some industry analysts are still concerned.

Sainsbury's customers
Sainsbury's customers come for the food

They stress that Sainsbury's will need to go beyond its current strengths to push profit margins higher, in order to ensure the recent rise in sales benefits its share holders.

A serious bout of cost-cutting, involving some 3,000 job cuts at its Holborn headquarters and cost reductions of 400m, has helped.

Mr King is moving his focus towards taking a lead in key market segments, such as organic food, healthy eating and green living.

"I think that what we stand for is increasingly what customers care about," Mr King argues.

In addition, he wants to speed up the rate at which Sainsbury's opens new stores.

"There's significant growth potential for this business in the UK," he says.

"Over a three- to five-year time frame, we can restore a property pipeline that will give us 4-5% footage growth," up from today's rate of 2%.

These are ambitious targets, but Mr King insists work is not all in his life.

"I'm disciplined about time off with my family," he says, stressing that he tries to stay no more than two nights a week in London and that if he is "working weekends in shops, I take time off during the week".

It may well make sense for him to pace himself. For Sainsbury's, there is still a long race ahead.

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