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Why J Sainsbury Plc Is Blowing Away The Competition

I was intrigued to learn this week that easyJet founder, Sir Stelios Haji-Ioannou, is opening a supermarket in a former office block in Croydon. Unsurprisingly, he plans to call the venture easyFood and will stock a range of non-branded tinned and packet foods as well as some household items.

His aim is to compete with discount retailers such as Aldi and Lidl, both of whom have enjoyed considerable success since the advent of the credit crunch. He also thinks there could be a gap in the market below such discounters, as around one in eight people in the UK visit a food bank. Should the supermarket be successful, he plans to roll it out on a bigger scale in 2014.

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However, isn’t he missing the point? Surely competing with food banks is a non-starter, since your competition is not charging people anything. Even if easyFood is very, very cheap it will still find it tough to compete with ‘free’.

Furthermore, to compete solely on price is a dangerous game and is unlikely to result in a viable, scalable business. Certainly, the British public want low prices; however, when a supermarket offers good value for money it can usually achieve higher margins. In other words, low prices and high quality equals success.

One such supermarket that has been able to offer customers excellent value for money is J Sainsbury (LSE: SBRY) (NASDAQOTH: JSAIY.US). Its ‘live well for less’ and ‘brand match’ campaigns have proved highly popular among a British public that seeks good value and is willing to pay more than it would at the likes of Lidl and Aldi (and easyFood) to obtain it.

In addition to continually gaining market share throughout the credit crunch, Sainsbury’s also provides shareholders with an attractive yield of 4.3%, while shares currently look good value on a price-to-earnings ratio of 13. This compares favourably to the FTSE 100 on 14.9 and the consumer services industry group (to which Sainsbury’s belongs) on 17.2.

Certainly, Sainsbury’s looks to be an attractive investment at the moment, but I would recommend you take a look at this exciting stock which will also be of significant interest to income-seeking investors.

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> Peter owns shares in Sainsbury’s.

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