Why J Sainsbury plc Could Be About To Strike It Rich And Leave Tesco PLC In Its Wake

Tesco PLC (LON:TSCO) and J Sainsbury plc (LON:SBRY) battle it out, but who will emerge victorious?

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Traders used to sell merchandise on the banks of the River Thames. That didn’t just happen in London — a small canal network in Lower Manhattan later became what we now know as New York City. Over time, around the world, the ‘corner store’ became more popular and river trading stopped altogether. Then, in the 20th Century, the supermarket began to take shape.

Today the concept of the supermarket is being challenged again, largely because of too much competition, and tighter consumer budgets. The question is, which of the big supermarkets will get the transition to a better model right? Whichever company it is, you’ll want to be invested in it.

Revolutionaries

As with all revolutions, someone needs to bankroll it. According to media reports, it looks like the Crystal Amber Fund could be front and centre for just this kind of support. It seems the fund wants to take Sainsbury’s (LSE: SBRY) and turn it around. To be a little less blunt, it looks like a whole bunch of guys with a lot of money — that think they know better than current management — want to raid the share registry.

What’s actually happening, or what could be happening?

As it turns out, this could be one of the best things that’s happened to the supermarket franchise in a while. It’s been selected out of a number of worthy competitors as the pick of the litter — to be groomed and put out on show.

As it stands, the company just isn’t cutting the mustard. Last month, it reported a £290 million pre-tax loss for the first half of the year. Chief executive Mike Coup was admittedly given a hospital pass from Justin King, but he’s always been optimistic about Sainsbury’s prospects. It now, however, looks like those with some buying power are taking matters into their own hands.

The Telegraph has reported that Crystal Amber could be looking to build a stake in Sainsbury’s in order to force it to sell-off a whole stack of property. You see, Sainsbury’s owns properties worth billions — much of which could be sold off and leased back to raise cash.

Importantly, too, it’s been revealed that Crystal Amber has compiled a 60-page dossier on the company exploring how the supermarket could better move forward. This Fool’s a little excited about that. It’s exactly what the company needs. Enough with the cheap gimmicks and loyalty cards. The supermarket chain needs to re-design itself. I believe it should re-pitch to the wealthier market.

So where does that leave Tesco?

Tesco (LSE: TSCO) (NASDAQOTH: TSCDY.US) is ahead of Sainsbury’s in terms of strategy. It’s re-working its relationships with suppliers, looking for discounts where it can, and changing the culture within the company to one of openness, diligence and efficiency.

The start of that was to declare last week that its earnings for the full financial year would not exceed £1.4 billion. That’s well below the £1.8 billion to £2.2 billion range expected by City analysts. So it’s clearly got a long way to go.

Tesco, however, has made it clear that it wants to be all things to everyone. It’s already rolled out convenience stores, and it’s pushing its brand in all directions including budget-end, middle class and high-end offerings. It’s brand-spanking-new board will — it’s hoped — ensure cohesion around this strategy.

What’s the end result?

Tesco has the first mover advantage on this one, but Sainsbury’s has the luxury of seeing what happens to Tesco now that it’s made its move, and so far the share price reaction doesn’t look pretty. Tesco would argue it’s playing the long game, but Sainsbury’s now looks like it could be about to pounce on a weakened Tesco. If Sainsbury’s successfully moves to the higher end of the market, and Britons continue to fall out of love with mid-priced groceries, Tesco could find itself struggling again.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

David Taylor has no position in any shares mentioned. The Motley Fool UK owns shares in Tesco. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Person holding magnifying glass over important document, reading the small print
Investing Articles

2 top FTSE 250 investment trusts trading at attractive discounts!

This pair of discounted FTSE 250 trusts appear to be on sale right now. Here's why I'd scoop up their…

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

3 things that could push the Lloyds share price to 60p and beyond

The Lloyds share price has broken through 50p. Next step 60p? And then what? Here are some thoughts on what…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

£1,000 in Rolls-Royce shares a year ago would be worth this much now

Rolls-Royce shares have posted one of the best stock market gains of the past 12 months. But what might the…

Read more »

Investing Articles

Are HSBC shares a FTSE bargain? Here’s what the charts say!

There are plenty of dirt-cheap FTSE 100 banking stocks for investors to choose from today. Our writer Royston Wild believes…

Read more »

Three signposts pointing in different directions, with 'Buy' 'Sell' and 'Hold' on
Investing Articles

Just released: Share Advisor’s latest ‘Hold’ recommendation [PREMIUM PICKS]

In our Share Advisor newsletter service, we provide buy, sell, and hold guidance for our universe of recommendations.

Read more »

Investing Articles

Investing £5 a day could help me build a second income of £329 a month!

This Fool explains how £5 a day, or one less takeaway coffee, could help her build a monthly second income…

Read more »

Smart young brown businesswoman working from home on a laptop
Investing Articles

2 FTSE income stocks investors should consider buying in April

Income stocks are a great way to build wealth. Our writer details two picks she believes investors should consider snapping…

Read more »

Investing Articles

What might the 5-year price chart tell us about BT shares?

Christopher Ruane considers what clues the long-term performance of BT shares might offer him about business performance and whether to…

Read more »