Sainsbury's is returning to form - but can the momentum be maintained, asks Jonathan Pritchard
Sainsbury's final figures – to be released next Wednesday – will give us a good opportunity to see just how far the company has come under the stewardship of Justin King. It is clear that great progress has been made but will that progress stall now the company is out of recovery mode?
Or will the momentum continue? We think the latter. When Justin King took the helm at Sainsbury's he took over a retailer that had lurched in various disastrous directions in the previous 15 years and was a shadow of its former market-leading self.
Under family stewardship, the company was more of a global retail conglomerate than a pure UK supermarket, and the core business was looked on as a cash cow – cash that could be spent on more interesting ventures into other business areas. Dino Adriano and Sir Peter Davis tried and failed to rectify the situation, but both obsessed too much with the margin line rather than the sales line. Trading momentum was lost as Sainsbury's was miles out of kilter on price and service standards.
The core of how King has succeeded where others have failed is that he clearly identified the problems he needed to solve. Within months of the arrival of King (and the not-to-be-forgotten Darren Shapland), all non-core assets ceased to be part of the group. UK food retailing was the sole focus. Price immediately became an obsession. Sainsbury's was anything up to 10% overpriced on an average basket: shoppers might excuse a 30p premium on a £30 basket, but they’ll certainly baulk at a £3 one.
Price is now back in line with the other majors, and promotions such as Switch and Save have been very effective. Like-for-like sales have shown good growth on good growth and the acceleration shown in the first quarter of 2009 demonstrates Sainsbury's continued attraction to customers. We won’t learn how recent trading has gone next Wednesday, but we’d bet it’s OK.
The main learnings us City analysts will take from the finals will be the margin performance, something that was towards the bottom of Justin King’s worry list when he took the helm. Stage two of the recovery process will be to rebuild margins.
Some would say that management has done the easy bit: the tough work starts now. But we wouldn’t bet against the Sainsbury's team winning that battle too.
Jonathan Pritchard is a partner at Oriel Securities.
Sainsbury's final figures – to be released next Wednesday – will give us a good opportunity to see just how far the company has come under the stewardship of Justin King. It is clear that great progress has been made but will that progress stall now the company is out of recovery mode?
Or will the momentum continue? We think the latter. When Justin King took the helm at Sainsbury's he took over a retailer that had lurched in various disastrous directions in the previous 15 years and was a shadow of its former market-leading self.
Under family stewardship, the company was more of a global retail conglomerate than a pure UK supermarket, and the core business was looked on as a cash cow – cash that could be spent on more interesting ventures into other business areas. Dino Adriano and Sir Peter Davis tried and failed to rectify the situation, but both obsessed too much with the margin line rather than the sales line. Trading momentum was lost as Sainsbury's was miles out of kilter on price and service standards.
The core of how King has succeeded where others have failed is that he clearly identified the problems he needed to solve. Within months of the arrival of King (and the not-to-be-forgotten Darren Shapland), all non-core assets ceased to be part of the group. UK food retailing was the sole focus. Price immediately became an obsession. Sainsbury's was anything up to 10% overpriced on an average basket: shoppers might excuse a 30p premium on a £30 basket, but they’ll certainly baulk at a £3 one.
Price is now back in line with the other majors, and promotions such as Switch and Save have been very effective. Like-for-like sales have shown good growth on good growth and the acceleration shown in the first quarter of 2009 demonstrates Sainsbury's continued attraction to customers. We won’t learn how recent trading has gone next Wednesday, but we’d bet it’s OK.
The main learnings us City analysts will take from the finals will be the margin performance, something that was towards the bottom of Justin King’s worry list when he took the helm. Stage two of the recovery process will be to rebuild margins.
Some would say that management has done the easy bit: the tough work starts now. But we wouldn’t bet against the Sainsbury's team winning that battle too.
Jonathan Pritchard is a partner at Oriel Securities.
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