Sainsbury's announces withdrawal from Egypt

Sainsbury's decision to pull out of Egypt marks the end of its short-lived flirtation with developing markets. It follows just months after the sale of Homebase, the DIY business it was forced to sell to fund investment in its core UK grocery business. But the company's latest results suggest that better times may be just around the corner.

Investors in Sainsbury's, the UK's second largest supermarket chain, have had a rough ride recently. Along with Marks and Spencer, Sainsbury's was until recently a British retailing success story - a strong and dependable brand with a golden touch. But like Marks and Spencer the company became complacent and failed to adapt to a rapidly changing retail environment, allowing Tesco to steal its number one position. A succession of setbacks has followed including the forced sale of Homebase, its lucrative DIY business to fund a store improvement program as well as the costly re-launch of its online shopping service.
 
The latest setback is that Sainsbury's is shutting down its Egyptian operations after less than two years in the country. Although Egypt is a potential honey pot for European retailers - recently attracting the attention of Carrefour, the French retail giant - Sainsbury's venture has turned out to be a costly mistake. The Egyptian business will now be sold to its minority partner to avoid any additional investment in the project, but the sale is expected to result in an exceptional loss of around GBP100-125 million. The company denies that the decision was necessitated by a campaign by Islamic activists during the Palestinian uprising against Sainsbury's alleged Israeli sympathies. But the lack of a supermarket-shopping culture probably hurt the program more. Sainsbury's criticized its own approach, suggesting the group was too ambitious and tried to do too much in too short a space of time.
 
At home though Sainsbury's appears to be turning the corner, reporting like-for-like profits (excluding petrol) up 4.8% for the first three months of 2001, while sales grew 6.9%, due to a combination of heavy promotions, store refurbishments and expansions, along with new product launches. However, this comparison is somewhat artificial as the supermarket did particularly poorly in the first quarter of last year and stockpiling at the outset of the foot-and-mouth crisis has bolstered results. Still, with the Egyptian debacle behind it and a store-refurbishment program now attracting new customers, it seems that Sainsbury's is on course for a more profitable future.

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