City & Business:Change at the checkout

J SAINSBURY has subtly changed in the couple of years since David Sainsbury took over running the family shop from his cousin John. First came the greater emphasis on value for money; then - shock, horror - a hostile contested takeover bid for Wm Low, a battle eventually lost to Tesco; then further expansion in the United States with the Giant Foods deal.

Now, if the rumours are correct, it is in negotiations to buy the do-it-yourself chain Texas Homecare from Ladbroke Group, or at least some of its stores. It's hard to see Sainsbury, which refuses to comment on the speculation, wanting some of the crummier Texas sites. Paul Rodgers assesses the impact of any merger on page 5.

Any combining of Sainsbury's Homebase with the Texas chain would be bound to destabilise the sector, which is not the healthiest even now. For starters, it would put pressure onW H Smith and Boots to come to some hard decisions about their ailing Do It All joint venture.

Sainsbury has recognised that the days of spending £700m or £800m a year on expansion of the core UK grocery chain are over. Saturation has been reached. Investment in new superstores would be tailing off anyway, even if the planning rules were not beingtightened up.

Without such a heavy investment programme, Sainsbury is starting to generate wads of cash. It either has to think about giving it back to shareholders, in the form of bumper dividends, or begin on a serious diversification programme.

Sainsbury is not alone. Tesco and Argyll, the owner of Safeway, face the same dilemma. These are interesting times for the supermarkets.