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Profits a store point for Sainsbury's

Sainsbury's is contemplating taking over a Caribbean island to grow organic fruit: having just announced swingeing job cuts and poor profits, company chief executive Dino Adriano may want to use the island as an escape haven.

The company has reported results that it itself calls "not acceptable". Analysts will now focus on what the company is doing to regain its once-prominent market position.

In the past year, a failed advertising campaign, two rounds of redundancies and industry speculation of a takeover have all contributed to Sainsbury's woes over being outstripped by rival Tesco.

The Value to Shout About campaign, featuring comedian John Cleese, was acknowledged as a flop and Sainsbury's parted company with the agency responsible, Abbott Mead Vickers.

Last month, 230 jobs were lost with the closure of the head office of its Savacentre division, followed swiftly by a cut of 300 head office jobs due to "unacceptable" sales figures.

And as part of the latest shake-up unveiled with the results, between two and four middle management jobs will be shed in each store - 1,100 in total. The individuals will be moved to other jobs or retrained although some redundancies are likely among those who dislike the change.

Meanwhile, its share price is disappointing. The overall lacklustre performance has led to comparisons with Marks & Spencer: a giant in its field, looking increasingly like it has lost its touch and in danger of becoming a dinosaur.

A merger with or takeover by M&S is one possibility industry experts have mooted; others include a takeover by American chain Walmart, the world's largest retailer, or by Dutch group Ahold.

But senior retail analyst Steve Davies, of Retail Intelligence, does not believe any takeover is likely at the moment.

He believes Sainsbury's will continue in the same direction in the short or medium term but bosses need to plan more imaginatively if they are to make any progress in catching up with Tesco.

"They need to sort out their own house. The advertising campaign was disastrous. They need to be more innovative and aggressive than Tesco now," he said.

Tesco's lead in recent years has been at the heart of Sainsbury's troubles. Sainsbury was the undisputed market leader during the recession of the early 1990s, but bosses were caught napping.

Tesco was first with ideas such as the policy to open more check-outs when queues form. Metro stores and the Clubcard. Both these ideas were initially dismissed by Sainsbury, who later had to play catch-up.

Its big rival also has far more stores - 586, compared with Sainsbury's 400 nationwide.

A dynamic dynasty

Nonetheless, the chain has come a long way since the first shop was opened 130 years ago by John James and Mary Ann Sainsbury in Drury Lane, London. The couple were so successful that they had opened two more branches within 10 years, mushrooming to 48 branches by the turn of the century.

When young John Benjamin Sainsbury went into partnership with his father in 1915, it was the beginning of a famous dynasty, which has lasted to this day.

Although none of the family still has an active role in running the company, they still own 35% of it. And analyst Mr Davies says the chain's future may partly rest on what the family members decide to do.

"If a 35% stake is floating around it makes a takeover much more plausible," he said.

Like-for-like sales in stores rose a disappointing 2.2% over the year to March this year.

In a bid to cut costs, the online shopping service has been cut back. From 27 stores nationwide, it will now involve just nine, in and around London. Demand did not justify the service, said Mr Adriano.

But looking to the future is not all about cutbacks: the company has announced that a pilot scheme allowing village shops to stock Sainsbury's own brand products is being expanded. In conjunction with the Post Office, more than 200 village sub-postmasters will be able to join the scheme by 2001.

And a favourite designer of Diana, Princess of Wales, has been commissioned to provide alternatives to the dowdy brown and orange staff uniforms. The new look involves baseball caps, navy trousers and ties decorated with fruit and vegetables.

At least Mr Adriano will have the satisfaction of knowing Sainsbury will be ahead of its rivals in something. After all, the Caribbean is a long way to go.

Relevant Stories

Home shopping war hots up (17 May 99 | The Company File)
Shake up at Sainsbury's (16 Apr 99 | The Company File)
A tale of two supermarkets (12 Apr 99 | The Company File)
Tesco jobs bonanza (13 Apr 99 | The Company File)

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