Boots products may be cheaper in Sainsbury's

Boots and J Sainsbury are linking up in an out-of-town shopping venture that could see Boots products sold in up to 100 branches of Britain's second largest supermarket group. However, the two companies scotched suggestions that the venture could lead to a full merger of the two companies.

The trial will see Boots' health and beauty ranges sold in six of Sainsbury's out-of-town superstores with the first due to open in early 2002. If successful the concept will be extended to about 100 of Sainsbury's largest branches.

The concept will see Boots open a concession-style store in the six Sainsbury branches, featuring 10,000 products. Sainsbury's existing range of toiletries will be removed.

The offer will include a Boots pharmacy as well as Boots' own brands such as No7, Soltan and Botanics. The shopping areas will be staffed by Boots workers though Sainsbury's shoppers will be able to pay for the goods at the usual Sainsbury's checkouts rather than having to queue up twice.

In a controversial move, Boots is expected to charge less for its toiletries in the Sainsbury's stores than it does in its existing outlets, though Steve Russell, Boots' chief executive, would not confirm this. Analysts questioned whether this would lead to cannibalisation of Boots' other outlets. Boots said the deal would enable it to increase more rapidly its presence out of town where a third of UK toiletries are purchased. Sainsbury's said the deal was a way of improving its non-food offer.

One analyst said: "Sainsbury's is the only major UK supermarket that hasn't been knocking seven bells out of Boots for the last 10 years and this deal is an admission that they just can't do it."

Another said the deal would enable Boots to access a growth opportunity at relatively low cost.

Commenting on the deal, Sir Peter Davis, J Sainsbury's chief executive, said: "This link brings together two well-established and highly respected quality brands to provide an unrivalled food, health and beauty offering in the UK."

At Boots Mr Russell was quick to scotch suggestions that the trading link might lead to a full-scale merger between the two companies.

He said: "We are saying categorically that it isn't. I would rule out such a deal. Our strategy is to be the leader in health and beauty products and services. That's different to what I would call multi-line retailing." Rumours of a possible merger first leaked last Autumn.

Sainsbury's has already signed a deal with Adams to provide a range of childrenswear and Starbucks to run some of its in-store coffee shops.

Boots has been under attack from the major supermarkets for some time, with Tesco and Asda being particularly aggressive on price. Boots has been fighting back with product promotions while moving into services such as dentistry, chiropody and leisure centres.

The two companies have tested other concepts before. A trial in the early 1990s saw several Boots mini-stores open within Sainsbury's branches but these were standalone branches with separate tills. There are currently just five of them remaining.

Analysts said the fact that Boots and Sainsbury's shares moved little on the news suggested that the City did not view the deal as a prelude to a merger. Boots shares closed 8p higher at 638p. J Sainsbury shares edged up 1.5p to 431p.