A bid for J Sainsbury from the private-equity consortium of CVC, Blackstone and Kohlberg Kravis Roberts (KKR) or a rival bidder could have serious ramifications for the supermarket’s marketing arm which, like the rest of the business, is likely to be subject to a rigorous cost effectiveness review following a change in ownership.
There are fears that the deal, which would be the biggest leveraged buyout in Europe, worth over £11bn, will lead to asset-stripping, investment cutting and mass redundancies across the supermarket chain.
The bidders’ intentions
But some industry experts believe that Sainsbury’s marketing staff could escape a dramatic restructuring should it be taken off the stock market, and may even benefit from such a move.
In Sainsbury’s case, this will largely depend on whether the predators’ focus is on delivering operational improvements or radically reducing costs, a tactic for which KKR is noted.
But analysts say it would be difficult to justify a scaling back of the supermarket’s marketing spend because its high-profile advertising campaign featuring chef Jamie Oliver has played a pivotal role in its revival.
Its resurgence has meant Sainsbury’s has recorded seven quarters of consecutive like-for-like sales and market share growth, with pre-tax profits for the six months to October 2006 edging close to £200m, up over 100% on the year before. Its share price has also risen more than 50% in the past 12 months.
Sustaining the business
Martin Glenn, chief executive of Birds Eye, which itself was taken over by British private equity firm Permira last year, thinks the change in ownership may not be a bad thing for the retailer and its marketing unit.
He says: “For Sainsbury’s this feels like it’s a year too late given the recovery it has had, but private equity firms are going to want to realise the company’s value, which means running it in a sustainable way.
“We only get value at Birds Eye from the business being sustainable. Marketing spend has increased rather than decreased because we want to get top-line growth. It seems to be a generic thing to say private equity firms are just asset strippers.” Other household names acquired by private equity firms include Kwik-Fit, Somerfield, Debenhams and the AA. The motoring organisation was taken over by Permira and CVC in 2004, an acquisition which led to the shedding of around a third of its 10,000-strong workforce, a change in marketing director and advertising agency.
But Mark Lund, chief executive of Delaney Lund Knox Warren & Partners, which has worked with the AA for the past two years, says the new private equity owners have been crucial in reviving its ailing “You’ve got a friend” advertising campaign.
He says: “They have been outstanding marketers and have brought confidence and clarity to the work we have done. Particularly with the ‘You’ve got a friend’ campaign and the roadside strategy, which had lost its way under Centrica.” Furthermore, marketing staff can take solace from suggestions that a private equity bid for Sainsbury’s is driven by a desire to diversify its product range, with a shift towards high-margin, non-food items, like electronics and clothes, in a bid to challenge market leader Tesco.