Opinion: Sainsbury's boss Mike Coupe is facing his toughest test yet

While its big four rivals fell into the depths of varying despair, Sainsbury’s emerged as the most consistent performer of the mainstream supermarket players.

Tesco’s 2014 accounting scandal plunged the market leader into crisis. Its reputation was battered, shoppers and suppliers rapidly lost trust and profits plummeted.

Asda, under orders from owner Walmart, protected its bottom line at the expense of sales. Quality, availability and its value proposition all dwindled, and its overarching strategy ultimately proved unsustainable.

And Morrisons lost its way under the leadership of former boss Dalton Philips, alienating its core customers with confusing loyalty schemes and its now infamous ‘misty veg’ experiment.

Yet as its rivals faltered, Sainsbury’s, commendably, held relatively firm.

“Amid a wider big four fightback, steady is no longer good enough”

Its pressured profitability may not have set the world alight, but ‘steady as she goes’ showings in the City were seen as a success when set against the travails of its closest competitors.

Amid a wider big four fightback, however, steady is no longer good enough.

Tesco has won over consumers and brands, prices have been sharpened, it is innovating in product and technology and is firmly on the front foot again after buying wholesale titan Booker.

Asda is slowly turning a corner, rebuilding its reputation for low prices and revamping its own-brand proposition in a bid to woo shoppers back from the discounters.

And Morrisons is pursuing capital-light growth ventures, opening franchised petrol forecourt c-stores and leveraging its vertically integrated model to build what it hopes will become a £1bn wholesale business.

Tough test

As Sainsbury’s peers fight back with renewed confidence and gusto, chief executive Mike Coupe is facing perhaps the sternest examination of his reign to date – the threat of his closest three competitors firing on all cylinders simultaneously for the first time since he succeeded Justin King in 2014.

Analysts expect Sainsbury’s pre-tax profit before exceptional items to edge down for the fourth straight year to around £572m when it unveils preliminary results to the market next Wednesday.

“Could Sainsbury’s be tempted into further M&A activity to bolster Coupe’s bid to ‘build a business for the future’?”

That would mark a 1.5% decline from the £581m Sainsbury’s banked in 2016/17 and a 2.6% drop when compared to its bottom line in 2015/16.

Although those declines in profitability may not be dramatic, Coupe could soon find the pressure to reverse that trend mounting rapidly.

Following Sainsbury’s prelims 12 months ago, Coupe insisted: “We think over a three- to five-year period we can deliver strong and steady profit growth.”

Indeed, the City currently expects profit before tax to climb to £629m in the 2018/19 financial year as the revenue benefits and cost synergies of Sainsbury’s £1.4bn acquisition of Argos come to the fore.

Given the success that combination has garnered thus far – Argos shop-in-shops have delivered solid sales and created a positive halo effect on grocery revenues – could Sainsbury’s be tempted into further M&A activity to bolster Coupe’s bid to “build a business for the future”?

Eyeing acquisitions

Sources close to the grocer tell Retail Week that its hierarchy remain in “acquisitive mood” following Tesco’s swoop for Booker, and are actively “looking at numerous opportunities” to broaden its stable.

Sainsbury’s previously rowed back on a move for retailer and wholesaler Nisa, which has been subsequently snapped up by the Co-op, but completed a £60m deal for longstanding loyalty programme partner Nectar in February.

And the smoke that linked the supermarket giant with a move for Mothercare earlier this month will certainly not have been without fire.

But with plenty of other embattled retailers and wholesalers crying out for a saviour, Sainsbury’s will no doubt be running the rule over other potential targets.

There will, of course, be risks associated with any such purchases, but Sainsbury’s may have to roll the dice sooner rather than later as Tesco and Morrisons quickly establish new profit streams and threaten to leave rivals in the shade.

If Sainsbury’s can emulate its previous exploits and emerge from the next few years as the big four victor, the plaudits will surely come flooding in for Coupe and co.