Sainsbury dynasty burdens luckless David

City & Business

David Sainsbury is one of the wealthiest men in Britain. I doubt he can be one of the happiest just now.

The graph shows the share price performance of his supermarket group since its flotation in 1976. Anyone canny enough to have bought the shares at the start is sitting on a mind-boggling return. Anyone canny enough to do so and to bale out at the end of 1992 has done even better.

By unfortunate coincidence, the share price peak came at almost the exact moment when the then chairman and chief executive John Sainsbury, Baron Sainsbury of Preston Candover, handed over to his younger cousin David. The shares have been on a downward path ever since. Last week, they plunged another 4 per cent and by Friday's close they had sunk to a low for the year of 361.5p. This despite a booming stock market.

Mr Sainsbury's poor reputation in the City is the direct result of that share-price decline. But the dotted line on the graph is the more serious indictment: it shows Sainsbury's performance relative to its arch-rival Tesco. Mr Sainsbury cannot be held responsible for the nerves that have beset all food retailers since the heady 1980s. But, goes City thinking, he can be expected to match the likes of Tesco. And this he is signally failing to do.

The company has always paid scant attention to the views of the City. I suspect Mr Sainsbury is much more concerned about his reputation with rest of the family, which still owns 40 per cent of the business. His great grandfather founded it 127 years ago and every Sainsbury until him enlarged both the business and the family fortune. Three former chairman are still very much alive. When the family gets together, the young David must feel a bit of a prune.

It is all a bit unfair. The fat years were already coming to an end when he took the baton. Planning rules were being tightened. Discounters were arriving. And the superstores were beginning to cannibalise each other. While his rivals still had the headroom to improve key operating ratios like margins and sales per square foot, Sainsbury had already achieved those efficiency gains. There was much less scope for further efficiencies.

So much for the defence. The prosecution case is that Sainsbury has run out of ideas and flair. It looks leaden-footed beside Tesco, which outgunned it in the takeover battle for William Low and is running rings round it on the marketing front. Tesco's pioneering loyalty card is helping it pile on new customers and squeeze extra sales from its existing customers. Last week, there was more agony for Mr Sainsbury as it emerged that Tesco is talking to NatWest about extending the card into financial services. It all sounds very ambitious (possibly too ambitious). But it underlines how Tesco is boldly examining new business opportunities. Contrast that with the bunker mentality at Sainsbury.

There is more embarrassment to come. While Tesco's annual results last week were sparkling, Sainsbury next month will have a sorry tale to tell, though it has already softened the blow with a profits warning in January. Moreover, analysts believe it will be able to boast a pick-up in underlying sales.

But shareholders will be expecting more. Three things would help. Mr Sainsbury is already relinquishing responsibility for the day-to-day running of the UK supermarkets, handing over to the well regarded Dino Adriano. But the other division - the curious amalgam of US supermarkets and UK DIY stores - remains headless. An appointment is urgently needed, together with assurance that the absorption of the Texas Homecare chain is not running into trouble.

Second, Sainsbury should put aside its doubts and roll out its own loyalty card. So far, it has used the marketing device sparingly as a tactical spoiler. The evidence that loyalty cards can be a tremendous spur to sales is now overwhelming. Mr Sainsbury has done U-turns before. He can do one more.

Finally, he needs to demonstrate that Sainsbury is no longer a purely family business but one prepared to accept ideas, advice and criticism from outside. The solution is to appoint some heavyweight non-executive directors with the guts to take on the executives. The three incumbents - an academic, a civil servant and health authority chairwoman - do not inspire confidence.

If Mr Sainsbury digs in his heels, there is always the ultimate sanction: threaten to bring his ferocious cousin John out of retirement!

China calls long shot

THREE weeks ago in this column I pointed out that everyone seemed to be overlooking the pivotal role China would play in any merger of BT and Cable & Wireless. While everyone else was analysing the earnings implications of the proposed deal, I said it would be a miraculously restrained China that would not want to meddle.

And so it has proved. We now learn that Peking could take a year before giving any green light to the deal. Suddenly, the engagement is set to be a far more prolonged affair, with rather less chance of ending up at the altar.

Until now, it has been assumed BT could not have been so naive as to overlook the China angle. But as more details leak out, it's hard to be so sanguine. There have been no high-level meetings between BT executives and Chinese officials. The only contact since the merger plan was first announced has been a technical visit to China by Alan Rudge, BT's deputy chief executive.

Sending a deputy anyone to meet the Chinese Government has the makings of a gaffe at the best of times. When you need them to approve the biggest deal in corporate history, it sounds like deliberate suicide. Face is everthing, as anyone doing business with China could have told BT.

One thing could still improve this deal's chances: a crash course in Chinese etiquette for BT's chairman, Sir Iain Vallance, followed by a week's banqueting in Peking.