Sainsbury's goes back to basics with its Local shop

News Analysis: The supermarket giant's decision to open convenience stores has provoked a mixed reaction

SAINSBURY'S IS to make a major push into the convenience store market with a chain of up to 1,000 small stores on busy high streets and railway stations. The supermarket giant, which has been losing market share to Tesco, will open 200 branches of Sainsbury's Local over the next three years creating 10,000 new jobs. The plan is create a new force in Britain's pounds 15bn convenience store market which is currently highly fragmented among a host of operators such as Spar, Alldays, Londis and Mace.

The initiative follows a trial of just three stores, one of which has only been open for a fortnight at Victoria in central London. But Sainsbury's denied it was expanding too fast, too soon, saying sales in the first three stores had been "way above expectations".

Dino Adriano, Sainsbury's chief executive said: "The roll-out of Sainsbury's Local will make the Sainsbury's brand more accessible and available to everyone in the UK. It is aimed at customers who are short on time and want quality fresh food and meal ideas in locations close to where they live and work."

Angela Megson, head of Sainsbury's local, said: "For people who have absolutely no time and need to do quick top-up shops, stores like these are ideal."

The Sainsbury's Local stores will measure just 3,000 square feet, which about the size of a tennis court. They will stock basic items such as bread, milk, bananas and tea and coffee at supermarket prices. The price of other items such as sandwiches and ready-made meals will be around 3-4 per cent more expensive. Openings hours will be long, from 6am-midnight, seven days a week.

Two new branches of Sainsbury's Local will open in Mornington Crescent, north London, and Paddington station later this year. The majority will be within the M25 in London and the Home Counties.

The company hopes to grow organically but will consider acquisitions and admitted that it will look at the 234 British Gas showrooms which Centrica announced would be closed earlier this week.

The initiative is good news for consumers who will benefit from a major supermarket brand in a market that has often been represented by down- at-heel independently owned stores charging high prices.

But as lifestyles change, with more women working and an increase in single-dweller households, the market has been growing strongly. According to a survey earlier this year by Retail Intelligence, the convenience store market grew by 4 per cent last year. Growth has averaged 5-6 per cent every year for the past five years.

A McCann Erikson survey saying that the average time to prepare a meal will fall from the current 30 minutes to 11 minutes by 2008 underlines the growth potential.

Sainsbury's move drew a mixed reaction from analysts. Steve Davis of Retail Intelligence said: "We had felt that Sainsbury's was prevaricating with new formats so we think it is a sensible move on their part. It is good to see Sainsbury's being pro-active again."

Others were more critical: Mike Dennis of SG Securities said: "It is a big push on the back of a small trial. It is stretching management too far when they should be concentrating on getting the core business right."

Some analysts said that Sainsbury's was again copying Tesco which started its smaller Tesco Metro format in 1992 and already has 41 outlets. It is also behind its rivals on the development of convenience stores on petrol forecourts where Tesco, Safeway and Somerfield havedeals with major oil companies.

In the City, the central complaint was that the convenience store initiative might prove a distraction from the key problem in the main supermarket business. Those problems were underlined yet again at the company's annual meeting yesterday which also saw the retirement of Sir Tim Sainsbury from the board after 25 years as a director. It is the first time in the company's 130-year history that there will be no member of the founding family on the board.

In a disappointing trading statement Sainsbury's said like -for-like sales in the three months to 26 June were down by 1.9 per cent in the UK supermarket business. Margins will also fall during the year, the company said. Sainsbury's added that the store refurbishment programme, announced last month, would lead to some disruption. Though pleased with its new advertising campaign and "We've Sliced the Price" promotion in 500 commonly bought lines, Sainsbury's admitted that its performance in the next quarter "will continue to be affected by the implementation of our programme of change". The gloomy statement prompted analysts to downgrade their full year profit forecasts, with SG Securities reducing its numbers from pounds 725m to pounds 690m.

The figures also overshadowed the group's annual shareholder meeting in central London. Sir George Bull, the recently appointed chairman, attempted to keep spirits up using his usual pronounced, loud tones that sounded like an army colonel crossed with a 1950s children's television presenter.

He had to field criticisms on empty shelves in the supermarkets, long check-out queues and poor technical knowledge at the Homebase DIY business.

The shares closed 2p lower at 385.5p.