Is Sainsbury’s performance being held back by family ties?

True, David Sainsbury has inherited an empire, but is he the man to rule it? The City will be scrutinising the effects of a reshuffle. By George Pitcher. George Pitcher is joint managing director of media consultancy Luther Pendragon

It makes a change to see a leading light of the supermarket industry, in the shape of Sainsbury’s, tackling a real issue this January, rather than the phoney one that it and its rivals usually foist on us.

Rarely, for example, is a price war in groceries for real. Price wars are driven by markets in crisis. The grocery market has seldom been in crisis during the protracted periods of economic prosperity in the Eighties and, even as recession marked the early years of the Nineties, there has been only recreational pressure on retailers to slash margins for the sake of market share.

What price wars have really offered has been the opportunity for grocers to launch a post-Christmas sales campaign, limiting deep discounts to non-essential items and perpetrating a cynical con-trick on the market. The real sadness is that we fall for it.

But this year, the usual story is alleviated by one of the grocery giants actually having to manage its business.

The new generation at Sainsbury’s has noticed that there is rather more to running the business than charging high margins for high-quality, middle-class lines, while following a Sasco Year Planner on the office wall that reminds you when to put out the press release on starting a price war.

The likes of Tesco and Asda, it should be said, have been no better. But they have been less smug. That is, perhaps, why Sainsbury’s has ceased to be the cash desk that it once was. Retail consultant Verdict last week released figures that demonstrated that Tesco’s stride is lengthening. Sainsbury’s slipped marginally, in market-share terms, from 13 per cent of sales in 1994 to 12.9 per cent in 1995. Tesco, meanwhile, increased its share from 12.9 per cent to 14.4 per cent.

The financial effect on shareholders has been uncomfortable. Over three years, the shares have dived by 30 per cent, underperforming the supermarket sector by 28 per cent and the FTSE 100 by nearly 50 per cent.

In the words of vacillating royalty, something had to be done. As with royalty of an earlier generation, one of the first acts was to shoot the messenger. Sainsbury’s marketing director Ivor Hunt was removed in favour of what is described as a more “aggressive” individual – Kevin McCarten from Kingfisher.

But the substantive act is the split of David Sainsbury’s roles as chairman and chief executive. That this move should come only under pressure – and who can tell what sort of pressure institutional shareholders have felt obliged to apply – suggests that the Sainsbury family are not big supporters of the Cadbury Report on corporate governance.

Indeed, David Sainsbury is on the record as saying that what drove the changes was the increasing scale of the business: “It is now too big a business for one person to manage.” This is quite breathtaking. Sainsbury Minimus may have done much to expand in the US, but when market share is shrinking in the UK, and the share price looks like yesterday’s leftovers, I respectfully suggest that this is not the time to be talking about the job having become too big to manage.

Everything one hears about David Sainsbury suggests he is an extremely good bloke. But, through the cold eye of the City analyst, there are perhaps two characteristics worth exploring. The first is that he does not seem as driven by this business as, on paper, his forebears. In short we should ask, is he a grocer at heart?

There are those who suggest that, despite his shop-floor enthusiasms, David Sainsbury’s only connection with the grocery trade is through his bloodline. His desire to make his mark in the US – the purchase of Shaw’s in New England and a stake in the Giant network have to date been successful – implies that this is a corporate creature who is not going to confine himself to the managing of troublesome UK core interests.

We have seen this before. When Lord Forte vested control in Rocco, the accusation – most recently articulated by Granada in pursuit of Forte plc – was that the young man tired easily of mass-market catering and wanted to be an international premier hotelier. Edgar Bronfman Jnr similarly departed from the wines and spirits staple of Seagram to take an interest in MCA, because he wanted to make movies rather than simply develop the stuffy old business his father had built.

I mustn’t be too unkind to David Sainsbury. He has inherited an empire that is facing one of the tougher periods in its history and one can hardly tell him that he should have chosen his parents more carefully.

But the buck stops with him. Homebase chairman Dino Adriano is being groomed as the new chief executive of the UK supermarket chain, so David will have more time to develop his plans for the US.

But the chairman still has a fight on his hands – investors in Sainsbury’s will be looking at the quality of delegation, as well as the quality of current management.

Sainsbury’s is at war and, as I said, for once it is not a phoney one.

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