Business Strategy and Outlook| Ioannis Pontikis, CFA |
While Sainsbury’s has historically distinguished itself from its peers with a higher-quality (premium-priced) food offering, it has been underperforming peers due to a lack of focus and responsiveness to an increasingly value-orientated U.K. consumer base. After the rejection of Sainsbury's proposed merger with Asda, the supermarket is in need of a turnaround strategy to regain market share and improve its price position versus competition. Our thesis after the rejections had been that Sainsbury’s could still regain competitiveness and we saw multiple paths ahead. First, through a new partnership/merger with a smaller grocer in the U.K., which could generate the necessary cost savings to invest back in prices. Alternatively, the group could proceed to a 2015 Tesco-like restructuring through an aggressive reassessment of the structural costs of its business. Sainsbury's recent restructuring plans confirmed the latter.