Change of helm at Sainsbury - J Sainsbury PLC - Brief Article

Eurofood, Jan 20, 2000

UK food retailer Sainsbury has axed chief executive officer Dino Adriano, the first non-family member to have been given the top job, and appointed Sir Peter Davis at the helm. During the reign of Adriano, who had worked at Sainsbury for 35 years, the group's share price slipped from 5.80 [pounds sterling] to under 3.00 [pounds sterling], although news in mid-January of the change of leadership bumped it up to 3.19 [pounds sterling] (??5.06). Adriano was frequently criticised as lacking in vision and strong leadership qualities, although chairman George Bull maintained that "Dino is an excellent and stalwart man.... This is not a criticism of Dino, it is just a way of beefing up and speeding up the pace of change."

And change is much needed if Sainsbury is to reverse the gradual loss of ground to Tesco, the arch rival to whom it ceded market leadership in 1995. While its Homebase home improvement division has been performing well, Sainsbury's core supermarket business has been sluggish for several years. The group admits its stores are shabby and analysts believe a radical overhaul of the Sainsbury's image is necessary if the group is to turn itself around. As competition in the sector becomes even more intense following the arrival of global leader Wal-Mart, which acquired third-placed Asda last summer (see Eurofood, 17 June 1999, p9), it will become even more imperative that Sainsbury retain the loyalty of existing customers and win new shoppers.

RETURN OF THE MAN FROM THE PRU

Sir Peter Davis might be just the man for the job, combining inside knowledge of the group he now heads up with experience of taking other major companies to success. For in 1976 Davis was hired by Sainsbury and rose to the position of director, but he quit ten years later because at that time the Sainsbury family, which still holds 40% of the group, said it would never make a non-family member chief executive - perhaps the group's biggest mistake. Davis now returns to his grocery roots from the Prudential insurance group, which has gone from strength to strength under his leadership. He refrained from outlining his targets for Sainsbury, saying that he will use the time between now and March, when his contract begins, to get himself up to date with the business.

PROGRESS IN EGYPT

Meanwhile, Sainsbury has reported on the progress of its Egyptian operations. Early last year the group acquired a 25.1% stake in Edge, a local food retailer which operates some 90 small outlets in the Cairo area. Although Edge is not a strong consumer brand, it benefits from strong links with the Egyptian government. It holds the management contract for 51 government-run stores as well as its 36 branded stores. In June 1999 Sainsbury followed up the move into Egypt with the acquisition of another local company, ABC Supermarket Expo, which owned five rather more upmarket stores in Cairo. A few months later the group further demonstrated its commitment to the country by upping its stake in Edge to 80.1%, with an option to buy the remainder. However, the group is indicating that it would like to use its own name in Egypt, since Edge is not well perceived and ABC is considered expensive.

ROLLING OUT TRIAL FORMATS

David Rowe, chief executive of Sainsbury's Egyptian operations, is adamant that the group will not only attract affluent consumers. "In the UK, Sainsbury is a mass market retailer, and we will be in Egypt too," he said. Based on feedback from 3 500 people interviewed in customer focus groups, a number of different store formats aimed at varying markets will be piloted during a trial period. These include cash & carry outlets; neighbourhood stores mainly offering low-price non-perishables; supermarkets; and hypermarkets where up to 50% of stock will be non-food. Rowe said that Sainsbury is also interested in being part of the retail parks which are becoming a feature of the Egyptian landscape.

LAUNCHPAD FOR MIDDLE EAST EXPANSION

With 65 million consumers in a concentrated area and a largely unexploited domestic food market, Egypt clearly offers a great deal of potential. Long-term, Sainsbury hopes to leverage a successful Egyptian operation as a launchpad for further expansion in the Middle East. Supermarkets currently account for just 5% of the Egyptian food market and this is reflected throughout the region, where Israel is almost alone in having strong food retailer brands (Blue Square and Supersol). As the area becomes more politically stable, the Middle East promises rich pickings for the first Western retailers to arrive with a workable range of store formats.