Two years after chairman Peter Davis was forced out by institutional shareholders, Sainsbury is tipped by analysts to take back its second place in the supermarket retail ranking from ASDA by the summer. Its turnaround has been swift and ruthless.

Chief executive Justin King has overseen a three-year recovery plan to cut £400 million from the supermarket’s costs by 2008, and has concentrated on a sales-led recovery designed to grow sales by £2.5 billion by the end of the 2007/8 financial year. As well as cutting costs, King has also directed what he sees as important long term investments, taking on around 3,000 more staff in stores, and investing and revamping 131 older stores across the country. Supply chains were one of the supermarket’s biggest headaches. The company employed a short-term fix to get the right goods on the shelves at the right time, in part by over-riding some of its systems with manual solutions. But now it claims to have reduced the number of ‘out of stock’ products by 75 per cent.

A year ago the company axed 750 staff from its head office, and in October, in a move that surprised no one, it ended its 10-year outsourcing contract with Accenture several years early and brought its IT operations back inhouse.

It surprised no one because Sainsbury’s problems had been blamed on failed IT systems, poor management and the disastrous supply chain system.
The original deal with Accenture was hoped to save about £35m a year, but Sainsbury’s has said that its IT focus had changed and it wanted to bring IT expertise back inhouse.

The supermarket recently began investing in improving its use of information to increase sales. It signed a deal with business intelligence company SAS to provide collaborative tools for securely sharing store layout and display data with its suppliers. The software determines how the store will present its product lines based on data collected from sales about buying patterns, and predictive trends.

Like at the other ‘big four’ supermarkets, non-food sales are becoming more important, and the IT operations will have to support them. Sainsbury’s has stated that non-food sales are expected to deliver £700m of the extra £2.5bn it is targeting.