Sainsbury’s CEO Mike Coupe steps down: analyst reaction

The announcement was not really much of a surprise: ever since the CMA blocked his attempt to merge Sainsbury’s and Asda in April last year there had been speculation his time might be up.

Shares in Sainsbury’s have fallen more than 2% so far today as the City digested the news of Coupe’s departure in May – and his replacement by retail and operations director Simon Roberts.

Sainsbury’s share price has seriously faltered under Coupe’s leadership, losing more than a third of its value since he started in the role in July 2014.

But what do the analysts have to say on the news?

Shore Capital analyst Clive Black:

“Mike Coupe is a very focused and intelligent executive who took on the mantle of leading Sainsbury’s at a most difficult time.

“He has rationally gone about his job, but also showed immense ambitions, effectively acquiring and integrating Argos, but materially over-extending the business’ capabilities in the eyes of the regulator with the proposed Asda merger. We have never faulted Mr Coupe for that merger attempt, albeit we remain scathing at the Sainsbury NEDs and advisors that did not offer him better counsel for a deal we felt was doomed from the start.

“We sincerely hope that Mr Coupe leaves Sainsbury with pride at these achievements and enjoys his retirement. We also hope a balanced assessment of his time emerges.”

 

Bernstein analyst Bruno Monteyne:

“For the last few months we have been discussing with investors the likelihood of Mike Coupe stepping down.

“The discussion initially started after the failed Asda-Sainsbury’s merger discussion. Mike retained investor and board support past that event but at the same time there was a recognition that Mike had had a very long and good innings at Sainsbury’s (the only big four supermarket that did not require a major margin reset in response to hard discounter growth).”

 

Retail watcher Nick Bubb:

“Following the news yesterday that Sainsbury is planning hundreds of management job cuts comes the news today that the embattled CEO Mike Coupe has at last paid the price for the failure of last year’s Asda deal and that he will step down on 1 June.

“And, as had been rumoured, the new CEO will be the leading internal candidate, Simon Roberts, the retail and operations director. Needless to say, there is no mention of Asda in the statement.”

 

AJ Bell investment director Russ Mould:

“Farewell, Mike Coupe, the deal-hungry Sainsbury’s boss who may unfortunately be remembered for his singing rather than retailing. He did the dance with Argos and Nectar but tripped up with attempts to marry Asda and partner with Danish retailer Netto in the UK.

“Just when you thought being caught on camera singing ‘we’re in the money’ was a low point, the Asda merger subsequently didn’t happen, and Coupe was left scrabbling for a plan B.

“Despite such hiccups, it is fair to say that he wasn’t afraid of making some bold strategic decisions, even if perhaps he should have been paying closer attention to the day-to-day running of the business. Argos is proving to have been a good deal and recent grocery trading has been fairly resilient despite intense market competition.

Looking ahead to the incoming boss, Monteyne at Bernstein said Simon Roberts was “a continuity-operator appointment” for Sainsbury’s, which reflected the fact the board and management team “probably think that Sainsbury’s is doing a good job within a tough market and no major changes are needed”.

“We feel slightly less certain about that,” Monteyne added. “An external person might find it easier to challenge the current way of thinking within the company and bring in an entirely new view on how customers perceive the company.”

Mould at AJ Bell said that with Roberts’ background at Marks & Spencer and Boots, he would be no stranger to the operational challenges facing large retailers.

“His agenda is likely to focus on getting more out of the existing business rather than finding new things to bolt on,” Mould said. “Like most retailers, the priority is to have a superior digital offering and a top-notch supply chain. That is likely to involve investment in IT and logistics, something that sounds very similar to Marks & Spencer’s current situation.

“At an investor and analyst event last September, Coupe was blunt in saying there is low or no underlying growth in the UK grocery market. He said the business would have to adapt by being more competitive on price and having a better in-store and online experience.

“He also outlined plans to capitalise on the fact that Sainsbury’s has a more affluent customer base than many of its rivals by getting them to spend on areas such as beauty products. It would seem natural for Roberts to continue this strategy rather than trying something radically different.”

However, Monteyne at Bernstein questioned whether it was time for a major margin reset at Sainsbury’s.

“Investors are not totally convinced that Sainsbury’s does not need a margin reset,” Monteyne said.

“The company has had better trading in the first half of this year, but it also had a bigger marketing spend in the first half and had some claw-back of supplier goodwill that was probably lacking during the attempted merger. We are personally not convinced that the placement of the new value-private-label tiers is prominent enough: if they do move it more prominently that will cause a material mix shift from standard PL to the new value tier. That is the equivalent of a major margin reset (without any price cuts).

“But that is what we think… the company talks very confidently about its pricing position and Simon Roberts is an insider, so part of the current strategy. We therefore think it is unlikely that the new CEO will start with a bang and a reset. He will only do so if trading were to deteriorate materially. But he has limited time (one year) to make up his mind and make it part of the honeymoon clean-up. Whatever he does during the first year, the fear will be top of investors’ mind. That will weigh on the shares.”

He added that investor sentiment around Coupe’s retirement announcement was likely to be weak – as it was when Dave Lewis revealed he was leaving Tesco.

“There is also the potential for a negative read across to the other UK food retailers as investors fret about what the new CEO might want to do,” Monteyne said. “This coincides with the announcement of more cost-cutting at Sainsbury’s yesterday evening.”