Sir Peter Davis has been at the helm of Sainsbury since March last year, and one of his first moves was to re-think all targets set by the troubled UK retailer's former management. "My sale target is increasing the profitability of the group and restoring Sainsbury's share price," he says. To this end, he is focusing on food retailing on both sides of the Atlantic.
Elsevier Food International, Vol. 4, Number 2, May 2001
Pascal Kuipers

Sainsbury is the second biggest retailer in one of Europe's most important retail markets, the UK. The retailer is recovering from lean years at home, when costs outpaced business growth, leading to declining profits and fewer customers. Meanwhile in the US, the world's largest retail market, Sainsbury has a strategic asset - Shaw's. All in all, the company is an ideal candidate for acquisition by a big consolidator with a large international spread -though this is an idea that Sir Peter rejects.

Sir Peter Davis rejoined J. Sainsbury pic as group chief executive on March 1, 2000. From 1976 to 1986 he worked for Sainsbury as assistant managing director responsible for all buying and marketing operations. In his inter-Sainsbury years 1986 to 1994, Sir Peter was chief executive and then chairman of the publishing company Reed International, becoming chairman of Reed Elsevier when the two companies merged. In 1994, Sir Peter joined the insurance company Prudential as a non-executive director, and a year later he became Prudential's group chief executive.

Can you envisage a future in which Sainsbury will either be bought by another big retailer -or will engage in a joint venture with one?
"When it comes to geographical spread, I don't necessarily think that bigger is better. I'm not in the least convinced that one must be a global retailer. Sainsbury started its US business well before its competitors, and we're currently focused on recovering in the UK and building our business in the US. Our capital base was limited because, with profits declining, it was difficult to get new capital by issuing new shares. That's why we've limited our objective to food retailing in two countries. We sold our DIY chain Homebase to provide us with the funds to invest in systems and stores, and we're currently reviewing our operations in Egypt. Concentrating on food retailing offers good prospects. We certainly have no wish to be taken over, but it is of course up to the shareholders. Despite its problems, Sainsbury is still a good company - we're Britain's number two! We have a very strong position in the south of England, where our loyal and affluent customers are attracted by our excellent range of fresh foods.
We will deliver better value and restore the company's share price via a three-year recovery plan. This consists of three pillars: re-platforming our IT-systems, renewing our supply chain and upgrading all our stores to common standards."

Does the latter apply to many stores? Was the former management reluctant to keep Sainsbury's store base up to date?
"I wouldn't say that. In fact, we've raised standards by adding more fresh foods and increasing the footage of selling space wherever possible. We opened or refitted 50 to 60 new stores, and we will roll this re-fitting out to all of our stores in the years to come. There are some 400 more to do, which means re-fitting 100 to 150 stores a year. That's a massive exercise."

First BSE and then food and mouth disease -Britain's certainly had plenty of problems on the food safety front. What sort of impact have these had on Sainsbury's business?
"Not a negative one. We have always made huge efforts when it comes to food safety. Our large food technology team inspects abattoirs and packaging facilities, and ensures that we have full traceability of our food. We import a very small number of meat products because we want to be able to inspect farms and abattoirs. We have long-standing relationships with our suppliers of meat and other fresh foods. Sainsbury sprang from a dairy company, so we started laying this foundation early. Customers trust our fresh foods. We also support organic products, which are already an important part of our business. Sainsbury has recently been voted Organic Retailer of the Year."

The environment is important to Sainsbury. On the other hand, though, Sainsbury sells petrol and cars. Isn't there a conflict of interest here?
"Our petrol sales don't conflict with our environmental position. Most of our customers come to the stores by car and there they can buy low sulphur petrol and less environmentally-unfriendly LP-gas at lower prices than at most other petrol stations. Some of our lorries are fuelled by LPG, as are all of our home delivery vans. We don't sell cars. Via Sainsbury's bank, we sell special loans that customers can use to buy a car.
Last week, an environmental survey of Britain's 100 largest listed companies was published, in which Sainsbury's ranked third - the only UK retailer in this top group. We also publish  a special environmental report, which is not something all retailers do. One of our London stores, based on the Greenwich peninsula, consumes just half the energy of an average supermarket. Meanwhile, some environmentally friendly procedures - for instance, in heating and lighting systems - have been rolled out to other stores.
The environment is highly important to a number of customers, and also to certain investors - such as those handling pension funds. It's for these individuals that we publish the environmental report, communicate our standpoint regarding the environment via our website and engage in environmental surveys."

What are the main differences between Sainsbury and Tesco?
"We're primarily a food retailer with a huge fresh foods offer, whereas Tesco is increasingly taking the non food route. Cross border, Tesco is expanding in emerging markets in the Far East and eastern Europe. Meanwhile, we're focusing on the developed US market. Again, this is a matter of priorities. We prefer to grow within the US than to invest in a large number of developing countries. Our international business is more profitable than Tesco's."

Maybe Sainsbury lacks the necessary specific experience to set up shop in an under-developed emerging market. Wasn't this a lesson you learnt in Egypt?
"Experience has nothing to do with it! It's a matter of priorities. We may have come into Egypt too early, but we're perfectly capable of running businesses in developing countries. However, we must prioritise when it comes to using our resources. That's why we are reviewing our operations in Egypt."

In the US, Sainsbury's subsidiary Shaw's acquired Star Markets in early 1999 and 19 Grand Union stores in November 2000, thereby increasing its business to US$ 4 billion. To compare: the 1999 sales figures of Ahold USA and Oelhaize USA were US$ 20.3 bn and US$ 14.5 bn respectively (inclusive of Hannaford). With limited growth objectives and increasing competition, how do you see Shaw's long-term future? How can Sainsbury meet the Shaw's sales target of US$ 10 billion by 2005?
"This target had been set by the previous management. My sole target is to increase the profitability of the group and to restore Sainsbury's share price and earnings per share."

But aren't investors keen on quantified targets and forecasts?
"No. Obviously when such figures are available they want to know about them, but what they really want to know is how the business is being turned around. Regarding Shaw's, we've also set our priorities in the US by focusing on New England in the northeast of the country. Stop & Shop from Ahold USA is the market leader, but Shaw's is number two and the only retailer that's represented in all six New England states. Primarily we aim at organic growth, occasionally filling gaps via acquisitions such as the 19 Grand Union stores. Making acquisitions in New England's neighbouring states is another option that we can explore. We have no specific plans at this moment, however, and we're no big consolidator in the US."

Back to Europe: what effect has Britain's decision not to adopt the Euro had on Sainsbury's business?
"No effect whatsoever. We focus on the UK and the US and deal with the Euro as we would with any other foreign currency. If the UK were to join the European currency union, we would incur extra initial costs in adapting to it. However, whenever we renew our commercial handling equipment - check-outs for example ¬we're making provisions for the Euro. If Britain does decide to join the Euro, we'll be able to adapt to it without problems."

How important is E-procurement for Sainsbury?
"We are very active in this field. Sainsbury is a founding member of, and a shareholder in, GlobalNetXchange. This is a fast moving project and one that 1 find particularly exciting. We are already reaping the benefits of membership, such as the interchange of systems and information between the GNX members. This is extremely important in our efforts to re- platform our systems - one of the pillars of Sainbury's recovery plan. Contacts with suppliers and payments are also much more efficient. Furthermore, GNX accelerates new product development, and the several auctions that we've done via the GNX systems have gone well. It's safe to say that Sainsbury is well and truly committed to B2B E-commerce."

GNX and the suppliers' E-marketplace Transora link their systems and invite similar initiatives in other sectors to join them in a 'megahub'. Both GNX and Transora, however, are still at an early stage of development. Aren't they in danger of running before they can walk? Compare the speed of the situation, for example, to how long it's taking to get global consensus on EOI standards.
"No! It can't move fast enough! The efficiencies are huge for non-competing retailers, who can create consensus and enjoy the benefits of efficiency relatively easily. Together, they can keep pace with the rapidly developing technology. I think there is room for two or three such E-marketplaces. It's only sensible if it means suppliers don't have to communicate in two or three languages."

Is a good B2B platform a sound basis for a profitable B2C operation?
"B2B and B2C are unrelated. Creating a sound cost basis is relevant to all customers. When I started as this company's CEO I inherited a B2C business model, which assessed B2C E-commerce as a separate business with its own assortment and was based on a large and highly automated order picking centre. There are flaws in this system. First, the home-shopping customer expects to see the same range of products as he or she would find within the store itself. And second, a picking centre route may be good in the long term, but it takes time and money to establish yourself well in the market. Over the last year, we have developed a hybrid system that incorporates both in-store and warehouse picking. In Manchester we have a smaller satellite warehouse that's enabling us to push forward the development of our home shopping service in the north of England."

Capital will be required both for Sainsbury's recovery programme in the UK and Shaw's US development. Does Sainsbury own enough real estate to raise the necessary funds - via sale and lease back of property, for example?
"Possibly. About 70 per cent of our real estate is owned via freehold or very long leasehold contracts. We've established property contracts with the owners whose real estate we rent. With rents fixed in advance and the right to change the stores as we think best, this gives us the operational flexibility we need. Currently 63 per cent of our real estate is freehold. We have raised new capital by selling the Homebase chain and have completed two big sale and leaseback deals - we now have very little debt."