THE INVESTMENT COLUMN : Sainsbury checks out new goals

Much has been made of the battle for market share between Sainsbury and Tesco. This has the look of a rather desperate struggle for a market that both sides would probably admit is reaching saturation point. Sainsbury, the current loser in the battle of the statistics, is certainly playing down the significance of a few percentage points here and there. Turnover is vanity, profits is sanity, it says. True up to a point.

There is little doubt over Sainsbury's position as a profits machine. Profits for the year to March rose by 10.5 per cent to £809m on sales that improved by 7.5 per cent to £12bn, making it Britain's largest retailer.

What seems to have happened is that Tesco has stolen the high ground as far as innovations and derring-do are concerned. Its Tesco Metro format has proved popular and its loyalty card, launched only weeks ago, already has more than five million subscribers.

Sainsbury is currently adopting a more cautious strategy in the newly restricted retailing world where the supermarket giants can no longer open out-of-town superstores at the rate of one a week. While Tesco has expanded into smaller, city-centre stores and taken the battle to Europe, Sainsbury is concentrating on squeezing higher profits from what it already has while expanding its interests in the US.

It will only open 12 new UK superstores this year but will modernise 82. Another 19 are begin extended and will be the first to have upmarket meat and fish counters selling Aberdeen Angus and swordfish. In the last three years, the range at a typical Sainsbury supermarket has expanded from 16,000 lines to 19,000.

While Tesco is expanding in Europe with interests in France and Hungary, Sainsbury is keenly pursuing the American dream of buying into a regional chain and expanding it. Shaw's and Giant, in which Sainsbury acquired a minority stake last November, are both doing well. Mr Sainsbury, however, says he has no plans to buy up the rest of Giant.

It also has another string to its bow with the DIY businesses of Homebase and the recently acquired Texas Homecare.

Such diversifications are all very well but it is UK supermarkets which still account for the lion's share of profits, so the City will be looking for some new ideas. UBS is forecasting pre-tax profits for next year of £890m, which on yesterday's closing price of 430p puts the shares on a forward p/e of 13.6, a slight premium to the market. In the short term, few fireworks can be expected.