Lord Sainsbury, 58, is one of Britain's richest men with a wealth estimated at over pounds 3bn. He was the sixth family member to run Sainsbury's since its started as a dairy shop in London's Drury Lane in 1869.
A keen supporter and financial backer of Tony Blair's Labour Party, he plans to devote himself to a career as a working peer. He will chair the new University for Industry, a government initiative designed to improve the skills of teenagers who leave school and do not attend further education.
Looking relaxed and cheerful Lord Sainsbury said yesterday: "It is a historic moment and in some ways a sad one. But of course it was also inevitable. Most people expected that there would be a 10-15 year gap after me before the next family member might have been ready."
On his new life in politics, he said: "It has been no secret that there are two things in my life, business and politics. The Blair government represents everything I have always wanted from British politics."
Lord Sainsbury is a recent convert to Labour after a long allegiance to the centre left Social Democrat party, which eventually merged with the Liberals to form the Liberal Democrats.
He announced in 1995 that he would vote for Labour under the leadership of Tony Blair and has written pamphlets for left-wing think tanks the Fabian Society and the Public Policy Centre.
Lord Sainsbury will hand over the running of the business to Dino Adriano, chief executive who has worked for the company for 20 years. Lord Sainsbury's cousin Tim Sainsbury will remain on the board as a non-executive director for a couple of years but will then depart too. Lord Sainsbury said the family intend to retain their near-40 per cent shareholding in the business.
Educated at Eton, Cambridge and the University of Columbia in New York, David Sainsbury was groomed to lead the business.
He joined in 1963 at the age of 23 and spent 17 years as finance director before becoming chairman in 1992. He did not always appear comfortable in the role which some say was more a duty for him than a pleasure.
His tenure in the top job led to mixed results. During his reign the business expanded further into America and bought Texas Homecare the DIY chain. But the supermarket business lost its way and was overtaken by a resurgent Tesco.
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