Steven Esom: Waitrose reaps its rewards - Sainsbury's customers are ripe for the picking

The supermarket's boss tells Abigail Townsend how a love of fine food and a good old-fashioned approach to retail have paid off in a tough market

One can only wonder what Justin King, chief executive of the struggling J Sainsbury, must be thinking right now. Last week saw the supermarket chain's smaller rival, Waitrose, reveal net profits of £121m and sales of £3bn. It was a high point for the upmarket foodstores - and surely a low one for Mr King. After all, Waitrose was once just a small part of the John Lewis Partnership and trailed Sainsbury's as the middle class's favourite grocer.

One can only wonder what Justin King, chief executive of the struggling J Sainsbury, must be thinking right now. Last week saw the supermarket chain's smaller rival, Waitrose, reveal net profits of £121m and sales of £3bn. It was a high point for the upmarket foodstores - and surely a low one for Mr King. After all, Waitrose was once just a small part of the John Lewis Partnership and trailed Sainsbury's as the middle class's favourite grocer.

Now, however, and as Waitrose's market share continues to grow, its annual sales have beaten those of the John Lewis stores. Last year, for the first time, profits in the two parts of the group were the same, and in the past few weeks Waitrose's sales were up a healthy 5 per cent. All the while, Sainsbury's continues to flounder. So it would be no surprise if Mr King was feeling a tad deflated this weekend.

But the bad news is that things could get worse. Waitrose's boss, Steven Esom, tries his hardest not to say it outright - he spent the first decade of his career at Sainsbury's, and appears the sort of man who would never intentionally be mean about anything. But it is evident where Waitrose intends to expand: into Sainsbury's customer base.

"J Sainsbury had this huge tranche of the upper market right down to the middle of the mid-market. But now," says Esom, pointing to Sainsbury's name floating in the middle of a hastily sketched chart, "if you are in the middle ground and you are not sure if you are a food specialist or a general merchandiser, no one will understand what you stand for."

Nor does he appear to have much faith in Sainsbury's recovery. Although he believes the upmarket share of grocery spend can support more than one retailer, he says: "It's a really difficult market. Our livestock schemes have taken 10, 15 years to put together. You cannot do these things overnight. It's not just about putting packs on shelves." Mr King, take note.

Esom hopes to take advantage of Sainsbury's vague market position as he expands the chain from its present 166 stores to 230. He is optimistic that, despite bad signs elsewhere in the sector, 2005 will to be a strong year for Waitrose.

"We had a fantastic Christmas - we won a lot of fans - and if you have a good Christmas, you tend to do well through Easter and into summer."

He wants to open more stores in the North, while Waitrose's online joint venture, Ocado - in which it has a 43 per cent stake - will help bolster business in central London.

As for Marks & Spencer, Waitrose's other traditional competitor, Esom does not seem to see it as a threat. He says it lacks definition: "It's a clothing retailer that happens to sell food." Although he won't dismiss it outright, the suggestion that Waitrose has replaced M&S as the high-quality supermarket chain of choice is met with a wry laugh. "It's nice if you say that, but I can't," he adds, never knowingly rude to the end.

Esom, 44, has been at Waitrose for nearly 10 years and in that time has tried to shift the public's perception of the chain. He winces at the word "posh" but concedes, with something approaching embarrassment, "that we were in all those sorts of places...", meaning nice, middle-class towns, predominately in the South. The supermarket was seen as a smart place to shop but for all the wrong reasons. "We constantly tell the story about our products but we failed to get that across in the 1990s. We were really focused on the A/Bs, and I think we felt quite safe. But [the] South Woodford [store, in east London] is an interesting example. We'd never have gone there in the 1990s, yet it's hugely successful. We have broadened our appeal and customer base by saying 'this is what we stand for'."

To prove his point, he uses bananas. "We decided that we would market Caribbean bananas, and there are now 100 or so small growers we have direct relationships with. Our customers are prepared to pay the premium, and it's one of the fastest-growing parts of fruit and veg'."

To reinforce relationships with producers, and against the backdrop of an Office of Fair Trading probe into supermarkets' dealings with suppliers, Esom is introducing an annual review. "It will be run by a third-party company, which will ask about how we behave as a retailer, and the management board will then get that [information] back. It's important we don't take these relationships for granted."

On first appearances, Esom looks like just another middle-aged man in grey - someone suited, maybe, to being general manager of a John Lewis store in the suburbs. But get him talking, and two things are evident: his love of food, and an old-fashioned attitude that means he sees himself as a retailer first and an executive second.

His says retailing "is in the blood". His great-grandfather left a chain of shops to his grandfather; these then passed to his father, who decided retailing wasn't in his blood and sold up. But Esom resurrected the family tradition by seeking a career in retail. He had a brief foray into the hospitality sector in the mid-1990s but returned when Waitrose offered him the post of director of buying. He made managing director three years ago.

As for appreciation of good food, he says: "I'd love to be a fantastic cook - I'm pretty average - but what I'm really interested in is what ingredients you cook with. I'm not a food snob. But I believe that the most important thing you purchase is the thing you eat, and I have always been totally uncompromising." Even his skiing holidays have a food theme, and he talks fondly of trekking across the snow to get to a Michelin-starred restaurant high in the French Alps.

But the thing that really gets his pulse racing is Waitrose. At first it seems he is fluent in marketing speak, trotting out John Lewis lines about its celebrated partnership structure and service. ("Our partners set us apart. It's their shop. It's like being invited to their home.") But the more he talks, the more it is obvious that, far from being spiel, these are genuinely held beliefs. Esom says other jobs do not appeal - he appears vaguely horrified at the thought of filling the current vacancy as head of food at M&S - and declines to divulge his salary, remarking with a grin: "It's one of the joys of working for a private company." He will, though, be taking the 14 per cent partnership bonus, the company's biggest for five years.

There is little doubt that Esom is a company man: cut him and Waitrose's green livery would flow freely. Whether he will stay at the retailer for the rest of his career remains up for debate, however, and he is suitably vague about his long-term plans. But should Waitrose continue to grow as it has so far on his watch, he could well find himself naming his price, wherever he ends up.

BIOGRAPHY

Born: 13 November 1960.

Education: Degree in geography from the University of Wales.

Career (1982): joined J Sainsbury's management trainee scheme as a biscuit buyer. Held various roles, including working for US subsidiary Shaws, before becoming senior manager, buying.

1993: buying and merchandising director, Texas Homecare.

1995: vice-president, global merchandising, Hilton International.

1996: director of buying, Waitrose.

2002: managing director.