>>Pricing challenge awaits king

Sainsbury’s share price jumped almost 5% on the day it released its interim statement. But that seems to have been more to do with the news of Justin King’s appointment as chief executive rather than the figures which showed that while Sainsbury had again increased profits, it had delivered disappointing sales growth.
Sir Peter told The Grocer he was very pleased with Sainsbury’s interim results. “We’ve delivered three years of profit growth and have increased the dividend.”
Group pre-tax profit rose 7% to £366m for the 28 weeks to October 11 on sales up 1% to £9.84bn. UK supermarket sales were up 1.8% to £8.2bn. However, a cloud remains over Sainsbury’s like-for-like sales which were on a par with Safeway’s - up only 0.1%. Like-for-likes at Sainsbury’s US subsidiary, Shaw’s Supermarkets, were not much better, up only 0.6%.
Many in the City have now downgraded Sainsbury and are forecasting a weak trading performance for the rest of the financial year. One analyst downgraded the shares as he believed the appointment of Justin King as chief executive meant there was little chance of a bid for Sainsbury in the next 12-18 months as the family was now unlikely to sell its stake.
However, Sir Peter promised Sainsbury would be back in the business of sales growth next year and predicted April would see a turnaround followed by an acceleration in like-for-like growth.
“We’re unhappy with our sales, but we’re not surprised,” said Sir Peter.
He explained that Sainsbury had been concentrating on finishing its three-year business transformation programme to ensure the business was running at its best. This would be completed by the summer of 2004, which would allow the new chief executive to reinvest in other areas. Sir Peter said the focus would then be on driving sales through a focus on quality, particularly through fresh and its premium ranges such as Taste The Difference, and reducing prices.
But it is this last point, described by many observers this week as a U-turn, that has created the most controversy.
It led one analyst to describe Sir Peter’s handover of the business to King as a “hospital pass” as one of the first tasks for the new chief executive would be to come up with a pricing and promotional strategy for Sainsbury.
Naturally enough, Sainsbury disagrees. As Sir Peter said: “We’ve done all the grunt work. Justin will have a good foundation - a leaner and fitter business.”