Sainsbury's looks to steer clear of the David Moyes curse

When King took over in 2004, Sainsbury’s stores were stained with empty shelves and demotivated staff. But since the collapse of Lehman Brothers it has been the best performing major supermarket chain in the UK.

However, there are signs that Sainsbury’s could also fall victim to the David Moyes curse.

In March the retailer warned that like-for-like sales had fallen for the first time in nine years, ending a run of 36 consecutive quarters of like-for-like growth under King.

This week he will present his last set of annual results. Profits are expected to grow 3.5pc to record levels. However, the company is likely to state that like-for-sales could be flat over the next year and analysts have already pencilled in a fall in profits for 2014/2015.

Sainsbury’s is operating with a lower margin than its listed rivals Tesco and Morrisons, meaning parts of the City are concerned that the retailer could be vulnerable to a price war among the “big four”.

Much like Moyes, Coupe will take the helm at a time when rivals appear to be getting their house in order and new rivals – the discounters Aldi and Lidl – emerge. Morrisons has committed £1bn over the next three years to lowering prices and improving own-brand food, while Asda is also lowering its prices and Clarke insists Tesco will invest at least £200m in reductions.

King has insisted that the price cuts are “part of the cut and thrust” of supermarket retailing. But Sainsbury’s is likely to find life more difficult over the next few years.

David McCarthy, retail analyst at HSBC, said: “Our concern is that falling total sales will become the norm for Sainsbury’s and the quoted food retail sector generally, as large stores lose sales to new channels, as capacity increases drive down like-for-like sales and as the unquoted sector continues to win market share.

“Sainsbury’s has had a good run, but it has now fallen back into the pack and looks increasingly vulnerable to competitor activity, in our view.

“Tesco, Morrisons and Asda have all said they will lower prices this year. Their announced, but not fully actioned, cumulative investment is close to £1bn and this is way beyond the normal cut and thrust of the sector. When a retailer is attacked on price, it can defend sales or margin, but not both.”

Coupe is unlikely to respond to the price cuts by leading a race to the bottom, but by emphasising Sainsbury’s differences such as the British provenance of its food and the quality of its own-brand ranges.

However, shares in the company are down almost 23pc since the middle of November and Sainsbury’s is the most shorted stock in the FTSE 100 according to Bloomberg data.

Tim Attenborough, analyst at Santander, said Coupe should reduce Sainsbury’s capital expenditure and store opening plans. Sainsbury’s is investing roughly £1.1bn a year, not including its bank, and has a pipeline of 70 supermarket schemes. It has been opening roughly 1m sq ft of new space – including new stores and extensions – every year.

The analyst said: “He inherits a good business, but faces deteriorating market conditions, increased price competition pressure on margins and, in our opinion, a need for greater capital discipline.

“We would look for a clear message on reining in capex and property development expenditure.”

Although Coupe will find a sizeable in-tray when he becomes chief executive, there are sound reasons why Sainsbury’s will avoid following Tesco, Diageo and BG.

Coupe, who was the obvious successor to King, has worked at the heart of the business for a decade so already knows it inside-out. While King has been the smiling face of the brand, Coupe has overseen the execution of the strategy.

Crucially, the rest of the senior management team are likely to stay. Unlike Moyes at Manchester United and Clarke at Tesco, Coupe has not cleared out the team put in place by his predecessor but instead revamped the operating board to give them new titles. At a recent dinner with the media, the spirit amongst the senior team was optimistic, not riddled with doubt. So while King may be departing Sainsbury’s, the company’s crown may sit easily with Coupe.

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