City gives thumbs up to Sainsbury's revamp

THE STOCK MARKET gave a cautious welcome to the latest shake-up at Sainsbury's yesterday as the struggling supermarket group announced a fresh package of measures designed to kick-start its flagging sales and narrow the gap with Tesco.

Sainsbury's shares edged 8.5p ahead to 388.75p as analysts welcomed management's honesty in admitting their past mistakes.

However, most supermarket experts said that the current management team would have to deliver on its promises this time or risk calls for changes.

Paul Smiddy, food retail analyst at Credit Lyonnais, said: "Everything they have said is sensible but we have had a lot of false dawns with this company before.

"They are re-launching the brand at a time when I am not sure the retail basics are strong enough to take it."

Phillip Dorgan at WestLB Panmure added: "They are basically trying to copy Tesco and there is nothing wrong with that.

"At least there is an element of humility there with the management prepared to admit to past mistakes."

Analysts were responding to a series of astonishing admissions by the Sainsbury's board. Dino Adriano, chief executive, said three quarters of the group's 413 supermarkets are "not up to scratch".

He said basic retailing basics had been ignored, with many stores deprived of investment for too long, resulting in too many shabby outlets with "clapped-out equipment".

He conceded that the group's customer service could be austere and that the company's culture would have to change.

"The performance of Sainsbury's supermarkets is not acceptable," he said.

To address the failings, Sainsbury's is implementing one of the biggest corporate overhauls in its 130-year history. Some 1,100 store management jobs have been cut to reduce costs and improve efficiency. These are in addition to the 230 jobs cut at the Savacentre headquarters and the 300 redundancies at Sainsbury's head office.

The rationalisation will yield a total of pounds 160m of cost savings and give the company the headroom to invest more in an improved service on the shopfloor.

The plan includes increased investment in the stores, expanding 40 per cent of the outlets and a 24 per cent increase over two years in non-food lines such as clothing, cookery products and health and beauty ranges. The changes will be backed by a new advertising campaign and new-look stores and uniforms.

There is a change in the boardroom, too, with Sir Tim Sainsbury stepping down as a non-executive director of the group.

The departure severs the company's remaining boardroom link with the founding family which still controls 35 per cent of the shares.

In an attempt to deliver better returns for long-suffering shareholders, Sainsbury's has also introduced a new "Managing for Value" campaign with the goal of taking Sainsbury's into the top quartile of its peer group within four to five years.

"It is not too late for us to change," said Mr Adriano. "I personally think, we will get it right this time."

The comments came as Sainsbury's unveiled a 3.8 per cent increase in full-year profits to pounds 756m, before exceptional items. Like-for-like sales rose by 2.2 per cent on last year but are thought to have slipped into negative territory in recent weeks.

Sainsbury's has pledged to restore sales growth by year end and beat the industry average by next financial year.

Outlook, page 19

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