Boss with a lot on his plate

SAINSBURY'S chief executive Sir Peter Davis is on the verge of naming his replacement. And he hopes that person will get him out of a tight spot. Sales have stalled, the three-year recovery programme is not bearing fruit and the supermarket chain has suffered a raft of technical and distribution problems.

To cap it all, Sainsbury has been barred from buying Safeway, which means it cannot even boost its figures by an acquisition.

Davis, 62, is putting on a brave face, but the City is losing patience. They want to see Davis kicked upstairs - or out altogether.

The incoming chief executive is understood to be a young, upcoming retailer rather than an old timer, sources told the Mail.

This makes it increasingly likely that Davis will be kept on for a while as chairman, but investors will be hoping that it does not slow the pace of change.

'This business needs a complete shake-up and a whole layer of management should be ditched,' said one analyst, who believes there is 'still a lot of fat' in head office.

Former Prudential chief Davis has invested nearly £2bn in revamping the supermarket chain since March 2000. He has introduced a new IT system, modernised stores and opened distribution centres.

But critics say he has neglected shoppers by failing to improve availability or price promotions.

Davis's attempt to focus on fresh food backfired when it became clear that even the upper middle classes wanted to buy socks alongside satsumas.

Sainsbury's inability to appeal to mainstream shoppers is starkly apparent when looking at the decline in its market share.

It used to be Britain's number one supermarket chain, but was overtaken by Tesco in 1995 (see graph for stock market values).

This year, it was knocked down from second to third place by Asda/Wal-Mart. Experts believe it will drop to fourth place within two years of the merger of Safeway and Morrisons.

One retail rival said: 'Sainsbury has some good sites, but they just aren't trading them properly.'

The hot summer buoyed sales at most of the major food retailers, but Sainsbury was the worst performer with sales down 0.2% last quarter. Its sales per square foot are below all rivals except Safeway. Davis blames the disruption of the new infrastructure, but appears to be doing little to get shoppers spending. Research by rival food retailers suggests that teething problems are ongoing. Availability in the stores is said to be well below par, particularly for fresh fruit and vegetables.

Davis must be hoping that things improve ahead of Christmas. If Sainsbury runs out of turkeys and sprouts, it risks alienating customers for good.

Wilting Sainsbury vulnerable to Green

BILLIONAIRE Philip Green is casting his eye over Sainsbury, which looks increasingly vulnerable to a takeover bid.

Green held tentative talks with Davis before the Competition Commission report on Safeway was released. He is still keen, but if he made a move, it would be after Christmas.

City sources say Green has been canvassing banks to see whether they would back a bid. But Green said: 'I am not out seeking finance for any acquisition at this time.' Venture capitalist firms are also taking a look.

The Commission's tough regulatory stance on Safeway has ruined the chances of a break-up bid, but analysts still reckon a new management team could massively improve Sainsbury's profitability.

It is a big deal to swallow, but Sainsbury's shares are trading on just 11.5 times forward earnings. Rival Safeway is on 13 times and Tesco is on nearly 15 times.

Sainsbury is currently valued at £5.6bn. Shareholders would expect a premium of at least 30%, pushing the actual takeover price above £7bn.

Green's biggest problem is the Sainsbury family. They own 35% of the shares and are fiercely protective of the brand that carries their name. The elitist Sainsburys are deeply against the idea of selling to 'rag-trade' entrepreneur Green, who is renowned for his liberal use of expletives.