ANALYSIS: How Oliver got an extra serving at Sainsbury’s

When Davis arrived at Sainsbury two years ago from the Prudential, he had his work cut out. The company was floundering, having lost its way under predecessor Dino Adriano and its "Value to Shout About" advertising campaign, fronted by former Monty Python star John Cleese, proved a flop. Davis ditched him for Oliver, a shrewd move that cashed in on the soaring popularity of TV chefs. The advertising campaign placed him in a variety of situations that showcased the entire Sainsbury range and appealed to the young smart set that prove both elusive and lucrative when it comes to pulling in market share.

Such was the campaign’s success, Oliver has just signed up for another four years with Sainsbury, for the tidy sum of 2 million, despite last year’s gaffe when his wife was photographed laden down with shopping from Waitrose. Some still say he’s cheap at the price.

Sainsbury has just reported a pre-tax profit of 627 million for the year to 30 March. This is 14.2 per cent up on last year and puts the tin hat on what has been a two-year pattern of decline. It may not all be down to Oliver, or even Davis, but they have clearly helped.

Sainsbury is the UK’s second biggest food retailer, with a market share of 11.7 per cent. However, Tesco, with 17.5 per cent, has widened the gap. Tesco can do little wrong in the eyes of the City and Davis must be fed up with the comparisons. In April, the company reported a fifth successive quarter of strong sales growth, only to have analysts point out that Tesco was still doing better. To make matters worse, Asda, now part of US giant Wal-Mart, holds 10.6 per cent of the market and may yet oust Sainsbury from the No2 position.

In line with a number of supermarket chains, Sainsbury’s business now seriously extends beyond food. It has used its strong brand name to go into a host of other activities, notably banking and clothing.

Thanks to a joint venture with the Bank of Scotland, it now has more than one million customers and provides a range of mortgages, personal loans, saver accounts and insurance products. The company is confident on future growth, if a little cryptic on the details of plans, stating: "We are considering some interesting choices about the rate at which we should grow this business in the future."

Last year, Sainsbury commissioned designer Jeff Banks to spearhead a foray into the clothing market. The Jeff & Co range is now in 36 outlets and growing fast. Sainsbury must be hoping to emulate Asda. The "George at Asda" clothing operation has gone from nowhere in 1990 to become the UK’s sixth-biggest clothing retailer, with an annual turnover of 800 million, aiming for 1 billion this year. Jeff & Co is in its infancy, but could yet add significantly to Sainsbury’s annual revenue of 18 billion.

One analyst said: "It’s the logical progression, to leverage the strong brand and make money out of other things. There’s so much more potential out there."

Geographically, there is one major weakness for Sainsbury: Scotland. Only 19 of its 480 outlets are north of the Border. Its market share there is just 4.8 per cent, a long way behind the others. Tesco grew by taking over William Low. Safeway, formerly part of the Argyll Group, has strong Scottish roots. It took until 1992 for Sainsbury to open its first Scottish supermarket , at Darnley, on the outskirts of Glasgow, and yesterday’s announcement of two local stores in Glasgow will only go a little way to addressing the balance. This looks like painfully slow progress for the UK’s longest-standing major food retailing chain.

Like its rivals, Sainsbury’s offers a choice of shopping formats. Sainsbury Central, as the name suggests, cater for commuters, and are positioned in the middle of towns. They offer a limited range of produce and less promotional items. A spokesman said: "They have lots of sandwiches and prepared meals. They’re for the grab-and-go customer." The same goes for locals, which are smaller still.

Sainsbury’s bigger outlets offer white goods, such as fridges and washing machines, as well as Jeff & Co, hi-fis, CDs and the complete food range. The company wants to be seen as a "destination" store, as well as one where shoppers will pop in when passing. Soon, it may be possible for some to satisfy nearly all their consumer needs at one place.

And now, having captured the hearts and minds of the middle and upper classes, the company is relaunching its Savacentre outlets, to attract value-oriented shoppers.

Davis has now completed one year of a three-year recovery plan. However, all the indications are that life will get tougher. The spending boom will not last forever, although basic food is relatively recession-proof. The strong results of the past year make for tougher comparison in the coming year.

Sainsbury was tight-lipped yesterday about how things have gone since its year-end on 30 March. However, Davis admitted that "we’ve continued to grow, but not at quite the rate we have been growing prior to this".

All eyes will be on the company’s trading statement on 24 July. The shares had already slipped some 14 per cent in the seven weeks prior to yesterday’s announcement in anticipation of the slowdown. Nick Bubb, analyst at SG Securities, said: "People were starting to lose faith and consumer sending may slow down."

Safeway set the negative tone for supermarkets this month by revealing like-for-like sales had grown just 2 per cent since the end of March. Still, Bubb has forecast pre-tax profits growing to 725 million in the year to 30 March, and others are coming round to a similar view. The shares edged up 7p yesterday to 370p.

When Marks & Spencer started its recovery, sceptics asked how long it would last. It’s still going. Sainsbury’s resurgence may yet have more mileage, even if the variety of its activities means that some failures are inevitable.