Sainsbury's Disappointing Plans for Singledom

(Bloomberg Opinion) -- If this was Mike Coupe's manifesto for J Sainsbury Plc's life without Walmart Inc.'s Asda, it was pretty disappointing.

The Sainsbury chief executive officer promised improvements to stores and price cuts. But details were vague and it is not immediately clear that they will be enough to revive the group's underlying sales growth, which continues to decline.

Among the plans unveiled on Wednesday was a pledge to invest in 400 supermarkets this year in an effort to revive store standards.

Coupe said these had already been moving in the right direction in recent months, but that's at odds with reports of empty shelves and shabby stores.

Retail capital expenditure will be maintained at about 550 million pounds ($718.6 million) this year. This will be skewed towards its main food business and its digital plans. That's about 100 million pounds more than it spent last year on its core supermarket estate.

The group will also lower prices for everyday essentials. This might help recover share it has lost in downmarket areas as it continued winning customers from premium competitors.

But Coupe says he can't divulge the amount to be invested in this program, as it is commercially sensitive. Nor did he describe how the savings for shoppers will be achieved. Cutting costs in the supply chain, which has already helped reduce the price of some items is one option, as is curbing what it pays for goods that are not for resale.

But after a management overhaul last year damaged stock availability and worsened the shopping environment in some locations, Sainsbury has to build trust that it can manage a delicate balance: too much cost cutting could make the offer to customers even worse.

The grocer will update the market further on its strategy in September, so more details might be forthcoming then.

At least Coupe provided some clarity on how the extra investments might be funded.

The integration of Argos is now complete, so it no longer has to finance the absorption of the household goods retailer. And it's possible that savings from the deal will exceed the 160 million pounds of synergies that were announced and have already been achieved. It's a similar picture at Sainsbury's Bank, where investment should also now come to an end.

However, sprucing up its supermarkets won't be the only call on its funds. Sainsbury has also set out plans to reduce its net debt, which stood at 1.6 billion pounds at March 9, by 600 million pounds over the next three years.

While the measures announced by Coupe are sensible, both operationally and financially, it looks like a tall order to get the grocer moving in the right direction and narrow the discount to both Tesco Plc and Wm Morrison Supermarkets Plc. When it comes to the price cuts, it is particularly vulnerable to retaliation from Tesco.

Even with the 5 percent bounce in Sainsbury shares on Wednesday, they have given up most of the gains they enjoyed after the merger with Asda was announced. 

While Tesco and Morrison are seeing their turnaround plans pay off, Sainsbury is drifting. It risks becoming the sick grocer of Britain, that rivals harvest for market share. It's hard to see Mike's manifesto changing that.

To contact the editor responsible for this story: Jennifer Ryan at jryan13@bloomberg.net

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Andrea Felsted is a Bloomberg Opinion columnist covering the consumer and retail industries. She previously worked at the Financial Times.

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