Sainsbury dumps plans to enter gas and electricity market

The J Sainsbury supermarket group is understood to have unexpectedly abandoned plans to sell gas and electricity to its customers in the emerging competitive domestic market.

Sainsbury has ended detailed talks which began late last year with several regional electricity companies (RECs), aimed at forging partnerships in the newly established competitive gas market. Around 2 million households are able to choose rival suppliers to British Gas in the south of England as part of on-going competition trials. So far almost 250,000 have switched to new gas companies.

The news of Sainsbury's change of mind over energy retailing is likely to stun and delight both its arch-rival, Tesco, along with the many independent gas supply companies which feared the big supermarkets would squeeze them out of the market.

Industry sources said last autumn that Sainsbury had sent out tender documents offering partnership discussions with several RECs which had been expanding into the gas market and had been holding face-to-face talks during January and February. The aim was to offer gas and electricity in stores across the UK, as the market moves to full domestic competition next year.

Last month the negotiations were broken off, with Sainsbury informing potential partners that it had decided not to proceed with gas retailing and, by implication, the sale of electricity. A spokeswoman for Sainsbury said: "We don't rule out any opportunities but at this stage we have no plans to enter the energy market. However things are still being considered - we never say never."

One source close to the talks said: "If Sainsbury were going to sell gas they would have done something by now ready for a full launch in September or October. "The fact that they appear to have got cold feet means the market is open for Tesco, though they are too good at keeping their intentions secret."

Although Tesco has been the only big supermarket chain to regularly attend monthly competition meetings organised by the gas watchdog, Ofgas, the store group's views on the energy market remain a mystery. A Tesco representative has been present at seminars held by Ofgas's Domestic Competition Focus Group, although the company is thought to have been concerned about unfavourable press coverage of the first competition trial in the south-west last year, where some homes were mistakenly sent huge final bills from British Gas.

Another concern for the supermarkets is the level of profit they can make from energy retailing. Although new suppliers are able to undercut British Gas by as much as 20 per cent because of lower gas purchase costs, the competitive advantage with electricity competition, due to start from next April, is much smaller.

Other retailers have already entered the gas market, including Dixons, which recently did a deal with the independent gas company Amerada Hess. Customers can sign up to receive gas from Amerada from Currys stores at the same time as buying washing machines using the chain's staff. They will get discounts of 15-18 per cent, with other schemes to fix prices or gain loyalty bonuses.