Sainsbury's gets a vote of confidence from an unlikely source

The supermarket has won the backing of Sir Ken Morrison.

by Jack Torrance
Last Updated: 19 Jun 2017

Sainsbury’s is increasingly looking like the victor in the major British supermarkets’ war of attrition. Though its latest official results were lukewarm, more recent unofficial figures paint a rosier picture and now the grocer has won the backing of a surprising investor.

Sir Ken Morrison, the de-facto founder and former chairman of Morrisons has built up a £6m stake in the rival business. It’s an unusual move for the entrepreneur, who spent decades turning his father’s dairy shop into Britain’s fourth-largest chain of supermarkets and remains its ‘life president’ – whatever that entails. His son William also owns 2.1 million shares, giving the pair a combined stake worth £11.9m

Sir Ken told The Times that Sainsbury’s 'is a well run company.’ It’s certainly doing better than its major competitors. Despite a rocky year, its share price has crept up by a total of 5.6% since January (including a 1.6% jump this morning, presumably on the news of Sir Ken's investment).

That compares to a 22.5% year-to-date decline for Tesco (which was already looking worse for wear) and a 19.4% decline for Morrisons. Their other major rival, Asda, is an unlisted subsidiary of US giant Walmart but its 4.7% sales slump in the three months to September suggests it is in a pretty precarious position too.

The share price performances of J Sainsbury (blue), Wm. Morrison (red) and Tesco (turquoise) in the year-to-date. 

News of Sir Ken’s interest in Sainsbury’s is a fresh embarrassment for Morrisons, which was booted out of the FTSE 100 earlier this month. The veteran hasn’t been afraid to criticise the management of his old company (he famously accused ill-fated chief exec Dalton Philips of talking ‘bullshit’), but has had only positive things to say about current boss David Potts - in public, at least.

His £6m stake in Sainsbury’s isn’t peanuts, even for someone of his wealth, but it doesn’t exactly look like the beginning of a takeover plan either – Sainsbury’s has a market cap of almost £5bn. That makes MT wonder what he is up to.

Indulge in some ‘fantasy M&A’ for a moment. Perhaps Sir Ken thinks Sainsbury’s could be looking to buy Morrisons? The supermarket certainly isn’t in need of any more stores, but for the right price might consider a takeover just to snap up a greater share of the market. It seems like an outlandish prospect, but you never know.

It’s possible, of course, that Sir Ken just thinks Sainsbury’s is simply worth a £6m punt. Latest Kantar Worldpanel figures suggest it has been holding up fairly well in the run-up to Christmas and it has certainly escaped the monumental screw-ups that have hit Tesco (in the form of an accounting scandal) and Morrisons (whose boss was given the shove at the start of this year).

Even if Sainsbury’s is winning then it’s still in no position to be triumphant. Britain’s grocers are scrapping over a market that’s in retreat. Although total sales of food have been creeping upwards, profits have been wiped out by falling prices. Whoever comes out on top this Christmas will be standing upon a much smaller summit than they would have been five years ago.

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