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Tuesday, 23 November, 1999, 12:52 GMT
What's gone wrong for Sainsbury's?

What's been going wrong at Sainsbury's? Ian Pollock of the BBC's business staff looks at the background to more disappointing figures.

"We have made good progress" claims Sainsbury's chief executive Dino Adriano.

If so, it's not evident yet from the company's half year results.

Profits for the last six months are down by 30%, to less than 300m.

That is partly due to the cost of more than 2,000 redundancies it implemented this year at its head office, among supermarket managers and at its Homebase DIY chain.

But the crucial problem for Sainsbury's is sales.

The whole group, which includes stores abroad and a bank which is now in profit, has in fact seen sales rise.

But the key indicator of retailing health is the so-called "like-for-like" figure which strips out the effect of opening new stores.

The volume of those sales at its core UK supermarkets is now 2.5% lower than a year ago.

This isn't something new either.

Sales first started falling a year ago, partly due to the then economic slowdown and the impact of the "value to shout about " advertising campaign that starred John Cleese.

The company soon dropped it and admitted it had had the unusual effect of actually depressing sales by turning off customers.

Always a good bet

Since then Sainsbury's has tried to improve matters by cutting its costs, hence the redundancies.

But its more recent initiatives such as cutting prices, and a new marketing campaign ( "making life taste better" ), have so far failed to stem the fall in the volume of sales while costing it a lot of money.

This is all a bit of a surprise, not only to Sainsbury's management, but also to many industry experts too.

Along with its similarly stricken counterpart Marks & Spencer, Sainsbury's has long been one of the Rolls Royce outfits of UK retailing, sailing effortlessly onwards.

So what's gone wrong?

After all, the deep recession at the beginning of the 90's didn't have this sort of effect. Indeed it seemed to imprint on everyone's mind the idea that as people always need to eat, big supermarkets will always be a good bet.

The key factor has been that concept which businesses claim to love but in reality hate - it's called competition.

For the first time in years the talk of a price war among supermarkets has become reality, prompted most recently by the promise of Asda to cut the price of thousands of items to the levels offered in America by its new owner Wal-Mart.

New management demand

Whereas UK supermarkets once traded not just on price but also convenience, quality and service, price has now come back to the fore.

All this has put unprecedented pressure on supermarkets and profits, a pressure intensified by the government's own continuing inquiry into the profitability and trading practices of the big grocery chains.

Will we see the demise of Sainsbury's, a name that has for decades defined shopping for food in the UK?

It's unlikely the company would ever fall into the red but these days nothing is sacred.

Just look at the terrible problems of the Somerfield chain which recently took over Kwiksave.

More likely, if things don't improve at Sainsbury's, its big City investors will demand that a new management team take over.

Only last month Dino Adriano relinquished day-to-day control of the supermarkets to a new managing director.

And with the former boss of Asda, Tory MP Archie Norman, on the prowl with serious financial backing to swoop on underperforming retailers, the future for Sainsbury's is not as predictable as it used to be.

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23 Nov 99 |  Business
Sainsbury profits slump

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