Traders used to sell merchandise on the banks of the River Thames. That didnt 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, youll 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 Sainsburys (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.
Whats actually happening, or what could be happening?
As it turns out, this could be one of the best things thats happened to the supermarket franchise in a while. Its 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 isnt 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 hes always been optimistic about Sainsburys 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 Sainsburys in order to force it to sell-off a whole stack of property. You see, Sainsburys owns properties worth billions much of which could be sold off and leased back to raise cash.
Importantly, too, its been revealed that Crystal Amber has compiled a 60-page dossier on the company exploring how the supermarket could better move forward. This Fools a little excited about that. Its 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 Sainsburys in terms of strategy. Its 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. Thats well below the 1.8 billion to 2.2 billion range expected by City analysts. So its clearly got a long way to go.
Tesco, however, has made it clear that it wants to be all things to everyone. Its already rolled out convenience stores, and its pushing its brand in all directions including budget-end, middle class and high-end offerings. Its brand-spanking-new board will its hoped ensure cohesion around this strategy.
Whats the end result?
Tesco has the first mover advantage on this one, but Sainsburys has the luxury of seeing what happens to Tesco now that its made its move, and so far the share price reaction doesnt look pretty. Tesco would argue its playing the long game, but Sainsburys now looks like it could be about to pounce on a weakened Tesco. If Sainsburys 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.
Tesco used to be a ‘safe’, ‘blue-chip’ stock that had the potential to set you up for retirement. Its recent share price drop has precluded it from that position but what if another supermarket was coming up the ranks to take its place? Could that be J Sainsbury? Maybe it’s a case of watch this space.
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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.
