Similarly, in its bid for Safeway, Sainsbury’s is losing ground to the more nippy offers from rivals Asda and Morrison’s, not to mention the supercharged retail entrepreneur Philip Green. A successful bid for Safeway from a rival would make it still more difficult for Sainsbury’s to switch between the two lanes, and the attitude of the competition regulators has made the odds against Sainsbury’s itself winning the race rather long.The retailer has been struggling to accelerate for some time. Ever since the early 1990s, when Tesco overtook it as the largest food retailer in the UK, Sainsbury’s has found it difficult to gain momentum. Worryingly, it is about to be overtaken as Britain’s second largest grocer by Asda, which is owned by US giant Wal-Mart.Tesco, Asda and Morrisons are all merrily slashing their prices to attract the cost-conscious consumer, while building new supermarkets around the country. “Sainsbury is disadvantaged by the fact that for decades, it was the benchmark model by which everyone else judged their own performance in food retailing,” says Mr Hyman. “That engendered an inward-looking, self-satisfied culture and a structure that was rigid.

People like Morrisons and Tesco always had to strive harder for crumbs of good performance that they could get off the table. Sainsbury’s was very self-satisfied and believed what they did was right because it was what they did.”He argues that another problem is Sainsbury’s previous lack of commitment to the sale of non-food products like clothes and CDs. The investment of Asda and Tesco’s in this field has been so successful that they threaten chemists, electrical retailers and DIY stores with their vast ranges of goods.To stop the rot, Sainsbury’s chief executive, Sir Peter Davis, was brought in from the Prudential during 2000. He had worked at the company before, more than a decade ago, but he left because he did not think he would ever be offered the top job. On his return he was hailed as the saviour of Sainsbury’s – the new blood destined to restore the fortunes of the group. It wasn’t long before he announced radical changes both to the company’s image and it infrastructure.Jamie Oliver was brought in as the face of the chain. The Mockney chef proved a great success and Sainsbury’s claims he has been responsible for more than £100m a year in increased profits.Sir Peter also set about reforming the company’s infrastructure.

Its antiquated storage and distribution network was too slow in getting popular products on the shelves, and unable to compete with the modern systems of Tesco and Asda.The same went for the chain’s aged IT system, which could set only one price for a product nationwide. Managers would have to change prices manually if, for example, a store in a working-class areas had to make reductions to compete with a nearby Asda, or if an upmarket store found it was charging significantly less than Waitrose. Also needing to be updated were the tills and back-office functions throughout the chain, as well as refurbishments for some of the more tired-looking stores.So far, Sir Peter has spent more than £2bn on these improvements, and the company is developing a new range of non-food products like home furnishings and clothes, to be introduced later this year.But sales are still lacklustre. Analysts and shareholders are starting to ask whether Sir Peter’s overhaul has been radical enough, and to place a question mark over his future.Predictions for the forthcoming update at this week’s annual general meeting are that like-for-like sales will be revealed as flat, at best; some analysts think they will be down by as much as 1.5 per cent.

Although Sir Peter’s cost-cutting programme has boosted profits by 17 per cent to £667m in the last financial year, it is the loss of market share and the poor sales performance that are causing concern among investors.Analysts wonder why Sir Peter chose to move the company’s more than 2,000 head office staff to an expensive site in Holborn, in the heart of London, particularly as some of those staff have been made redundant in recent months. The location contrasts sharply with the less exalted headquarters of Sainsbury’s rivals. Morrisons is based in Bradford, Asda in Leeds, and Tesco in Cheshunt, Hertfordshire.”I’m sure it’s so they can be near the Royal Opera House,” suggests one City analyst mischievously, hitting at Sir Peter’s directorship of that institution. Sir Peter has been criticised by the City for being too involved in worthy deeds such as chairing the Government’s Employer Task Force on Pensions and the Confederation for British Industry’s committee on “rewards for failure”.But more fundamentally, analysts are questioning whether Sainsbury’s can remain dominant in its sector by promoting a “quality and value” image, which means that its average shopping basket is more expensive than those of its main rivals. “Their cost base is still out of line with Asda and Tesco,” explains Paul Smiddy at Robert W Baird. “In their quest to protect their profits, they are pushing upmarket products down the throats of consumers. Some customers would look at the range that has been skewed and think, ‘Golly, this is an expensive store’.”A survey by Verdict Research showed that loyalty among Sainsbury’s customers is relatively low.