J Sainsbury's communication breakdown with shareholders over the choice of a new chairman this month continued the supermarket's run of poor publicity in the media.
Its climb-down over the appointment of Sir Ian Prosser has shown that disenchantment among shareholders in one of Britain's great retail institutions is rife - and they are keen to air their grievances in the financial press.
Shareholders reacted angrily to the choice of Prosser, whose old-school reputation sits uncomfortably with the popular view that Sainsbury's needs to become more dynamic and modern in its thinking.
However, Sainsbury's head of investor relations Lynda Ashton claims press reports that the supermarket chain has a frosty relationship with investors 'baffles us slightly'. She insists the withdrawal of Prosser has been greeted by shareholders with appreciation that Sainsbury's responded to their concerns so quickly.
She adds that it is 'not normal to consult shareholders on board appointments', pointing out that Sainsbury's did not consult investors over the appointment of CEO Justin King, who is due to take up his post in April.
Communications under review
'What we wanted was two appointments that complemented each other,' says Ashton, but adds Sainsbury's is reviewing how a subsequent appointment will be handled and how it will communicate with the City.
Critics say the retailer needs to learn how to move more quickly, both to respond to investor concerns and to promote its products and services to improve sales performance.
One industry observer says that, while it has shown signs of improvement, Sainsbury's would not be able to respond as quickly and innovatively.
'Sainsbury's approach to business has been cumbersome and bureaucratic. It is controlling, lacking in dynamism and not particularly brave,' says the observer. 'Tesco has been sharper, quicker, faster, and more streetwise. It has been more creative and more willing to push the boundaries.'
Although Sainsbury's Jamie Oliver-fronted advertising has given it a fresher, more youthful image, it must tackle the question of how to follow it: 'That worked, but what's the next step forward? It has done the hardest bit of knocking down the old traditional image, but has failed to capitalise on it. It has got to find a way of injecting new energy and youthfulness.'
However, he adds that Sainsbury's poor reception in the City is not so much a result of bad PR practice as business weakness. The problem is that it is being outgunned by its rivals. Asda is surging because it has backing from Wal-Mart; Tesco and Asda have started to replicate Sainsbury's quality and assurance, but at lower prices; while Morrisons is seen as a well-grown business, making it appealing to investors.
The source says Sainsbury's has suffered from a sense that the brand has a birthright. 'But in the modern market you earn what you deserve. It has failed to move with the times.'
Some put its financial sluggishness down to its presence in the consumer media. Alan Sleator, managing director at Wonderful PR, which handled PR for rival Tesco for six years until November 2003, says Tesco's position six years ago was similar to that of Sainsbury's today. It responded by starting a 'big drive to market itself through the media'.
The dedication to PR came from the top, says Sleator, with chief executive Terry Leahy and marketing director Tim Mason recognising PR as a fundamental element of marketing strategy.
Sleator claims Tesco's success is down to 'a real hunger to generate positive coverage', combined with a PR structure that allows it to quickly identify and produce media opportunities.
'It's a very slick operation,' says Sleator, explaining how Tesco gave Wonderful PR a 'totally free rein to approach every single buyer'. The agency assigned its staff to different Tesco departments, likening each to a journalist's patch, which gave it the ability to come up with stories proactively, rather than wait for simple product launches.
One example of this came when Tesco launched a ten-year anniversary promotion for its Tesco Value beans, with prizes for anyone who could find one of its original cans. He says the promotion attracted enormous media coverage, despite the fact there was nothing new about the product.
Tesco's ability to react quickly to possible stories was illustrated by its success at promoting its low acid-content onions. Although the product was not new, Slater says it took Tesco less than an hour to come up with an angle that attracted several full-page stories in national tabloids.
While Sainsbury's is very successful at gaining coverage in food titles, Sleator says Tesco outperforms it in general news pages every time. He believes it is Tesco's ability to do away with the lengthy process of campaign approval by its marketing and legal departments that sets it apart from Sainsbury's, and claims that Sainsbury's 'doesn't quite understand how the media has moved on'.
One thing is clear - Sainsbury's desperately needs to win back the confidence of the City and its shareholders. A dynamic chairman coupled with a nimbler communications culture would be just the tonic.
SAINSBURY'S: THE DECLINE OF A BRITISH RETAIL INSTITUTION
- As of October 2003, Sainsbury's had 498 supermarkets in the UK
- In 2002 sales of all food retailers totalled £99.6bn (Mintel International Group)
- Sainsbury Supermarkets slipped behind Asda in share of UK supermarket sales in the two weeks to 1 February 2004 with a 16.5 per cent share. Asda grew to 17.1 per cent. Tesco remained on top with a 27.2 per cent share (Taylor Nelson Sofres)
- Sainsbury Supermarkets' operating profit reached £572m in 2003, up from £462m in 2001, but less than 1999's £671m
- Tesco's operating profit in the UK has increased from £919m in 1999 to almost £1.2bn in 2003
- Sir Ian Prosser stands down as chairman designate on 17 February, 2004, just seven days after his appointment.