Sainsbury's and Boots trial joint venture faces axe

The health and beauty joint venture between J Sainsbury and Boots is expected to be scrapped as Sainsbury's concentrates its energies on the £3bn bid battle for Safeway.

It is thought that both sides have become frustrated over the progress of the trial. Boots has been distracted by management turmoil with both its chairman and chief executive are leaving. This has delayed decision making and made forward planning difficult.

Sainsbury's and Boots have been testing a joint venture in nine stores since October 2001. The trial sees Boots take over the whole health and beauty offer in large, out-of-town Sainsbury's stores.

The two groups had to make a submission to the Office of Fair Trading to clear the tie-up and this may have provided a further stumbling block. One retail analyst said: "I don't think the OFT would have been terribly keen to see Boots' market share of around 33 per cent added to Sainsbury's share. The deal would also have removed Sainsbury's as a competitor."

The talks have been hampered by Boots' decision to seek a new chief executive to replace Steve Russell. Boots' chairman John McGrath is stepping down in the summer.

Sainsbury's is spending time and resources on its indicative cash-and-shares bid for Safeway. With the battle becoming a six-way fight that will change the landscape of supermarket retailing, Sainsbury's deal with Boots has slipped down the list of priorities. Sainsbury's says it is "still in discussions" with Boots and would not comment further.

A Boots spokesman said: "We've obviously aware that there is interest in this trial in the City. If any anything were to change we would communicate it accordingly. At the moment it continues to run and we're very comfortable with its current performance." Neither company would say when a formal announcement will be made.

A decision to end the tie-up will come despite health and beauty sales in the participating supermarkets being up by almost 10 per cent.

The end of the trial would be a blow to Boots which has been forced to jettison a series of new ideas such as its plan to roll out a chain of Pure Beauty upmarket cosmetics stores. The move into Well Being Services is also being reined back as the company concentrates on the core Boots the Chemists chain. But Boots is accelerating its push into edge-of-town sites. It has signed deals for six branches in the past few weeks with 10-15 in the pipeline. It currently has 75. Some of the stores will be smaller than the existing portfolio as Boots takes on board lessons from the Sainsbury's trial.