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Sainsbury’s targets Asda as grocery battle heats up

  • King clearly knew that difficult times were ahead at Sainsbury’s
  • Whole grocery sector faces uncertain future and potential bid battles

Figures from Sainsbury’s this morning not only provide further proof of structural shifts in the British grocery sector, they almost certainly confirm that Justin King knew exactly what was on the horizon when he decided to step down as chief executive in July.

Sainsbury’s cut its full-year sales forecasts after seeing a sharp fall in second quarter trading. Its shares are down by almost a third so far this year which is proving to be an annus horribilis for the whole sector.

This is not simply about the discounters nipping away at the bottom and the likes of Waitrose and M&S taking market share at the top. The UK grocery market is growing at its slowest pace for more than 20 years. Saturation has become a big issue and finding ways to expand in such circumstances is the challenge facing King’s successor Mike Coupe and his peers.

King, who was credited with turning around the company, must have foreseen more difficult times ahead. Getting out while his star was still shining was important for a business leader who still has youth on his side.

His decision followed Sir Terry Leahy’s departure from Tesco in what looks like a similar story. Tesco has gone from bad to worse since losing the man who built it into Britain’s biggest chain. An embarrassing withdrawal from the US, a declining home market and the recent overstatement of profits has left the group reeling and some analysts believe it may never recover.  The Financial Conduct Authority has launched an investigation into the crisis.

Leahy’s successor Philip Clarke was handed a difficult task and clearly some underlying problems and he has passed the baton to former Unilever executive Dave Lewis who has a big task in returning Tesco to something like its previously unchallenged status in the sector.

As for Coupe, it would appear that he is turning his own sights away from Tesco and training them on Asda which is seen as the dominant force on price among the big four.

James McGregor, an analyst at Retail Remedy, says Sainsbury’s is increasingly being caught in a “pincer movement” between the aggressive discounters and the higher end grocers such as Waitrose.

“Sainsbury’s can take comfort from the fact that every else is in the same fight, but it does feel like it could have better capitalised on the woes of Tesco,” he said.

“What’s not in doubt is that the next few years will be critical in the long-term future of the UK grocery sector. We are witnessing a major shakedown.”

Whether that shakedown will materialise into bid action is one question that is bound to be on the lips of City traders and investors. Tesco, perhaps thought bid-proof at one time, must be on the radar of some of its overseas rivals. Sainsbury’s could find itself in a similar battle.

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