A promising joint venture between UK retail giants J Sainsbury and Boots has suffered a sorry demise. Boots is by far the biggest loser – it has let Sainsbury’s learn from its expertise, without ensuring permanent access to supermarket customers. With continuing management losses and the growing threat from the pharmaceutical companies, Boots is facing serious difficulties.

A joint venture between UK high street pharmacy Boots and leading supermarket chain Sainsbury’s has come to an acrimonious end as the two companies disagreed over the division of revenues.

The venture was straightforward enough: Boots supplied nine Sainsbury’s stores with health and beauty products, creating a store-within-a-store. The trial was a widely hailed as a success and all initial targets were met. However, the two companies could not agree on how to roll out the next phase as they feuded over revenues.

Sainsbury’s has benefited most from the arrangement – it has had one year to see Boots’ expertise in action, while Boots has lost the opportunity to expand its business.

Boots has suffered under increasing competition from supermarkets and the joint venture was an attempt to combat the convenience they offer. Having a store within a store was theoretically a good method of meeting this challenge directly, but it seems to have relied too heavily on the goodwill of the host.

Boots’ alternative strategy is to follow the supermarkets out of town – it now has 77 stores in ‘edge of town’ locations. This comes at a time when supermarkets have halted their drive out of town and are focusing once more on developing smaller stores in town centers.

Boots is currently facing troubled times – it is hemorrhaging senior management and has to deal with the threat from supermarkets to its core health and beauty lines. It also faces increased competition in pharmaceuticals after the Office of Fair Trading decided to open up the market.

While Sainsbury’s has suffered least from the venture’s demise, it too has faced strong competition as Asda Wal-Mart challenged it for the number two spot among the UK’s supermarkets. It has also been distracted by the battle for control of Safeway. Its renewed efforts at building its own health and beauty sales will be an important factor in its future success.

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