In the game of City perceptions, Sainsbury’s is slithering down the
slippery snake while competitors climb the ladders of leadership.
News of Sainsbury’s third profit warning in four years has been greeted
by shock, outrage, heavily critical media reports and the shares
spiralling into freefall.
Sainsbury’s is seen as having lost the race to its rivals. It’s been
outmarketed and outmanoeuvred.
Trading performance has been lacklustre. Attempts to expand into the US
have run into difficulties. The cost of integrating the DIY businesses
has proved far higher than expected. Sainsbury’s now scramble to follow
their rivals’ innovative marketing initiatives. But their biggest missed
opportunity was the failure to realise the significance of customer
loyalty programmes. When Tesco launched its Clubcard, David Sainsbury
derided the ides. Yet 15 months later they launched their own card and
it’s costing a fortune to catch up. The impression, at best is that of a
Clearly the root of the problem lies in the supermarket’s performance
exacerbated by poor presentation. The announcement at the end of January
that Sainsbury’s profits would fall pounds 50 million below expectations
came only a month after management had visited institutions with an
upbeat message. Such a dramatic about-face has caused considerable
embarrassment - rumours of a row with their bankers Warburgs are rife -
and management is being criticised for having lost the plot.
Some of this criticism is probably unfair. Market expectations were
probably too high, conditioned by years of Sainsbury’s leading the pack.
The company is profitable. Sales are moving back in the right direction.
There is a new management team in place.
Longer term, Sainsbury’s strategy of overseas expansion and taking the
sector into banking may come good. The heavy investment in marketing and
customer service may help them rebuild share, or at least hold their
position in the supermarkets league.
Sainsbury’s need time to rebuild their reputation. But to do this they
need to communicate a clear strategy, and to show some dynamism,
originality and leadership. Currently they are seen as complacent,
cautious and not in total control. With management credibility at an all
time low, there is a major task ahead.