Tesco pulls in front but the race is not over yet

Why is it that the Oxford and Cambridge boat race always springs to mind when discussing the relative ups and downs of Sainsbury's and Tesco? Perhaps it is the dullness and predictability of the race. Or the fact that over the event's 142 years, the two have each won roughly the same number of races. What is certainly true is that the grocery trade has become a race of two competitors in which winner and loser occasionally get reversed, but not often.

Tesco has been winning for at least three or four years now, but there is no doubting the significance of yesterday's profits setback for Sainsbury's, even if it was widely expected in the City. This is the company's first profits fall in 22 years; if proof were needed that Sainsbury's has come badly off the boil, this is it. For so long the pioneer of all that is good in British supermarket retailing, Sainsbury's now seems to be trailing lamentably, following its competitors rather than leading them. Even the nationally available loyalty card, once dismissed by David Sainsbury as no more than green shield stamps in electronic form, is now going to be copied.

For the time being the winning streak belongs to Tesco; its team looks quite unbeatable. But it was not always thus, nor will it always be so. The captain of the Tesco boat, Sir Ian MacLaurin, retires in a year's time and though he leaves an established, relatively young, and undeniably strong crew behind him, once captainless, Tesco may also become rudderless. Furthermore, amid all the headlines about how Sainsbury's has lost its way, it is easy to forget that this is still a formidable and highly successful company. On many measures, Sainsbury's continues to outperform Tesco. It has fewer stores, but it is more profitable, has greater sales per square foot, fatter margins and on some measures is more efficient. Despite the recent underperformance of its share price, Sainsbury's is, moreover, still bigger in terms of market capitalisation.

David Sainsbury's management style is plainly a very different one from that of his uncle, the man who made the company what it is today. But that doesn't necessarily mean that his more consensus-oriented approach is wrong. It may actually be more in tune with today's much larger company than his uncle's autocratic style. Mistakes have been made, there is no doubt about that. Sainsbury's has failed to stay ahead of the competition. Its tricks have been learnt and copied by Tesco, which has moved on and introduced a few of its own. Furthermore, the company's overseas expansion, choosing the US rather than the Continent, is proving a waste of money.

Most crucially, however, it has failed to maintain its distinctive place in the market - high quality, greater choice, middle class and as a consequence able to charge that little bit extra. These days the customer barely distinguishes between Tesco and Sainsbury's - the most critical factor in customer choice being store location, size and modernity. No creche? Forget it.

Whether this failure to stay aggressively in front of the competition is down to the family dominated, dynastically controlled nature of the company, is anyone's guess. What is certain is that Sainsbury's is not yet so far adrift that it demands the fate that befell Forte. David Sainsbury is chairman by right of birth, true, but his family does still own nearly 40 per cent of the company. Furthermore, there is no evidence of the non- commercial pursuit of grandeur and empire that often characterises second or third-generation family companies. Sainsbury's doesn't yet need a new captain, but it could certainly do with a Dan Topolski to turn its fortunes.