J Sainsbury, Britain’s second largest supermarket chain, revealed strong Q3 trading results earlier today [Monday] and a profitable turnaround in its Christmas sales growth.

A warning went out to a fifth of the chain’s store managers however – as a review of the company’s operations is being initiated on a “sooner rather than later” basis.

Q3 strong as expected

For the 12 weeks to 5 January 2002, Sir Peter Davis, Sainsbury CEO, reported: “This is the fourth quarter of increasingly strong like-for-like sales growth in the UK and the third consecutive quarter of like-for-like sales of 6.0% or more. This is a very significant improvement over the 0.6% achieved in the same three quarters last year.”

“We’ve seen continued growth in customer visits and increasing average spend,” he added.

The chain met forecasts of strong sales during Q3, with like-for-like sales at the chain’s 450 stores up 1.5%. For the year to date, meanwhile, total sales, excluding petrol, were up 7.4% and like-for-like sales growth on the same basis was up 6.4%. The recent fall in fuel prices dampened sales growth across the industry, but it is not thought to have a major impact on group profits – the consumer boom is continuing despite the continuing increase in prices.

During the quarter, good progress was made on the store reinvigoration programme, with 16 stores refurbished and 11 stores extended, and at its US Shaw’s operations the systems and supply chain implementation is going well. Shaw’s actually reported weaker underlying sales growth of 1.6% but Sainsbury blamed poor weather and softer demand across the industry.

For the first time in seven years, Davis was able to tell reporters that he was delighted to be gaining market share from sector leader Tesco: “Sainsbury had taken customers from Tesco for the first time in seven years. In each quarter we’ve reduced their take from us. I think it’s quite significant that we’ve stopped losing share and we’re seeing net gains from Tesco.”

Festive cheers

Furthermore, it was a record Christmas and New Year trading period for the chain, with like-for-like sales up 6.8% excluding petrol for 6 weeks to 5 January, heralding a turnaround after last year’s disappointing festive season.

Davis said: “We had a strong Christmas and New Year trading period, with our extended Christmas range selling well across the estate. Improved planning, better systems and the hard work of our colleagues delivered consistently high availability nationwide. Record volumes were delivered into stores on peak days over the festive period, allowing us to keep customers well supplied throughout.

“In total we had 131 stores reinvigorated at Christmas, compared to 31 stores at Christmas 2000 and we continue to see strong sales uplifts.”
“We’re very encouraged by these results, which give us confidence that we are on track to fulfil the targets we have set ourselves this year and to deliver a sustainable recovery of the business.”

Analysts cautious

Analysts responded to the news with caution, however, with many pointing out that the exceptionally strong sales growth witnessed by the sector as a whole will not last much longer. Many investors have been banking profits as the competition heats up in January.

Andrew Kasoulis, with Credit Suisse First Boston, told Reuters: “The honeymoon is over for Sainsbury’s […] It’s all about what happens next…That is the real test.”

Davis acknowledged: “It will be more difficult with the (tougher) comparables starting to kick in, but we’re confident we’ll maintain a good rate of growth.”
Store managers review

As it enters 2002, Sainsbury is stepping up a nationwide review of operations as part of Davis’ three-year recovery plan for the chain, implemented last April. When he took on the CEO role of the beleaguered chain in March 2000, he promised to deliver annual savings of £150m (US$217m) and a closing of the market gulf with Tesco.

In particular, the review will directly affect about 100 store managers, who heard last week that an unfavourable review of their competence and their store’s performance could lead to redundancy, early retirement or close supervision. According to reports, the managers initially thought they were attending a conference designed to update them on the company’s “Delivering Great Service” campaign – but were soon split into two groups to receive warnings on performance of differing severity.

The Observer reported yesterday [Sunday] that Sainsbury’s has already employed head hunters to recruit replacements, but while the group has admitted that some store managers were a cause for concern, it played down the importance of the meeting. Davis maintained that there is “nothing like 100 jobs under threat.”

A spokesperson meanwhile told the Financial Times: “We want to ensure that we have the very best store managers to fulfil customer requirements. This is just part of the transformation process.”

“The success of any store is very much dependent on the manager’s capability.”

Stuart Mitchell, head of Sainsbury’s Supermarkets’ trading, retail and supply chain divisions, will supervise the review.