Sainsbury looks north with expansion plans

Published on Wednesday 11 November 2009 20:53

A SAINSBURY's expansion drive will be skewed to Scotland and the north of England, it said yesterday as the supermarket group became the second big retailer to warn a further rise in VAT is likely after the next election.

Chief executive Justin King's comments came as Sainsbury's pleased the market with a robust interim trading performance, pre-tax profits climbing 32.6 per cent to 342 million. Like-for-like sales grew 5.7 per cent in the 28 weeks to 3 October.

The group revealed that its expansion plans would create 10,000 jobs by March 2011. It said it opened 24 stores in the first half, which included 18 acquired from the Co-op and Somerfield.

• Profits and expansion make things look good for Sainsbury. Picture: TSPL

Sainsbury said it already had planning consents for 50 new stores as well, as it remained well on course for previously-flagged space growth of 15 per cent over two years.

King said the group believed it was under-represented in certain areas, with a 6.6 per cent market share in Scotland, where it has 39 stores.

That compares with a 10 per cent market share north of the English Midlands and 20 per cent in the south-east and south-west of England.

New stores opened in the period included Muirend, in Glasgow, and Kinross, while a new store is to open in Braehead in Glasgow next Wednesday.

Darren Shapland, Sainsbury's chief financial officer, said the group had previously thought it could not trade in the north as successfully as it had down south, but the success of the Morrisons acquisition of Safeway – which took Bradford-based Morrisons into Scotland and the south of England – had partly helped it decide "we can compete very well in the north".

King joined Sir Stuart Rose at Marks & Spencer in warning that a further rises in VAT after the election must be very possible – following the restoration of the tax to 17.5 per cent on 1 January after a year-long cut to 15 per cent to stimulate the economy.

He said VAT was likely to be "very high up the list" of potential tax rises whoever gained power.

But King warned the government against extending VAT to currently exempt food, saying it "would be very damaging for the poorest of society. I think that would be a bad idea".

Total sales at Sainsbury rose 3.7 per cent to 11.2bn, while the divi rises 11 per cent to 4p (3.6p). Sainsbury's non-food offering was growing at two and a half times the rate of food from a much lower base, King said, while groceries online saw growth of more than 20 per cent in the first half.

King also said it would probably be the first or second quarter of 2010 before it became clear whether the economic recovery was gaining traction or risked going into a double-dip. "There's a lot of uncertainty out there," he said.

David Tyler, who recently replaced Royal Bank of Scotland chairman Phillip Hampton as chairman of Sainsbury, also played down speculation the company's biggest shareholder, the Qatar Investment Authority, might make a fresh takeover bid after a failed attempt in 2007.

"There's no suggestion whatsoever that it (QIA's attitude] has changed from what it has been over the last 12 or 18 months, which is wishing this business well and being a long-term shareholder," Tyler said.

QIA owns 26 per cent of Sainsbury. Sainsbury's shares closed up 10.6p, or 3.2 per cent, at 338.2p.