UK: J Sainsbury: a long road ahead (COMMENT)
UK supermarket chain Sainsbury has posted a £39m (US$72.4m) H1 pre-tax loss.
J Sainsbury has reported the first loss in its 135-year existence, while its competitors are going from strength to strength. To affect a turnaround, the company will first need to address essentials such as product availability, but if it is to return to former glories, a more thorough brand rethink may be in order.
Sainsbury's current state of affairs is in stark contrast to its position less than ten years ago, when it was Britain's leading supermarket. In the intervening period, while Sainsbury's market share virtually stagnated, Tesco's share has almost doubled. Sainsbury's performance over the last decade is nothing short of abysmal.
The causes of its fall from grace can be traced back to several mistakes that Sainsbury has made during that period. First of all, it chose to pursue the unprofitable middle ground between upmarket chains such as Waitrose and price-led rivals such as Asda and Tesco. It was a cardinal sin: Sainsbury lost out as the market polarised between low cost and premium priced outlets.
Secondly, Sainsbury has been very slow in reacting to rapidly changing shopping behaviour and the demand for higher margin non-food items such as fashion and homewares. Furthermore, large investments in IT and the supply chain, which were supposed to tailor demand specifically to stores, failed appallingly, and the unavailability of daily groceries such as bread and milk was exposed, bringing the chain more bad press. Last and not least, its stores have not kept pace with the interior modernisation programmes seen in many of its competitors' outlets. As a result, the Sainsbury brand has lost some of its shine.
Sainsbury has devised a recovery plan centred on increasing sales by improving customer service and product availability. However, addressing these issues alone is unlikely to strengthen the company's position in an increasingly cutthroat market. Excellent customer service and extensive product availability now come as standard in the British supermarket industry: these are simple prerequisites for any successful retailer.
It is therefore likely that Sainsbury will need to initiate a more significant overhaul, including a repositioning within the market and a reinvigoration of the brand. Any delays in the recovery plan will certainly spark more talk of takeover attempts by foreign rivals or private equity groups. This week's bad news marks only the start of the struggle to salvage Sainsbury.
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