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London - Cutting costs, investment, prices and dividends are likely to be among the initiatives announced by new Sainsbury's boss Mike Coupe on Wednesday, when he reveals his plan for coping with the toughest market conditions for decades.
With Sainsbury's share price down a third in the last year, Coupe, who was promoted to succeed Justin King in July, is under pressure to come up with a strategy that convinces investors it can avoid the even deeper problems experienced by market leader Tesco and smaller rival Morrisons.
He said last month market conditions were the most challenging he had experienced in his 30-year career in retail -- a "perfect storm" of price deflation, customers shopping around more than ever and a post-recession trend of people eating out more often.
Up until the fourth quarter of its 2013-14 fiscal year, Sainsbury's had been outperforming rivals, with nine unbroken years of sales growth. It has since had three straight quarters of falling sales, culminating in a like-for-like sales drop of 2.8 percent, excluding fuel, in its second quarter to September 27.
On Wednesday, Sainsbury's is forecast by analysts to post a first-half underlying pretax profit of about £350m ($554 million), down 12.5% on the same period last year.
Like "big four" rivals Tesco, Walmart's Asda and Morrisons, Sainsbury's has been losing market share to discounters Aldi and Lidl as well as upmarket Waitrose and Marks & Spencer, and in October cut its sales forecast for the 2014-15 fiscal year.
All of the big four have responded by cutting prices and new Tesco boss Dave Lewis, who is also grappling with an accounting scandal, is expected to shake-up the market further with more price reductions.
Coupe promised his review would look at all aspects of Sainsbury's business, leaving "no stone unturned".
He has previously said Sainsbury's can set itself apart from rivals with a strategy that focuses on own-brand products, on the quality, provenance and ethical credentials of its food, and on expanding its fast-growing convenience and online businesses.
But analysts and investors think more price cuts may be needed and to do that Coupe needs to find money.
"The big things that people are looking for in the strategic review are very good shepherding of the cash flow, so probably reducing the plans they might have had for increased space and reducing the capital expenditure," one investor in Sainsbury's told Reuters, adding he did not want to see a dividend cut.
However, Exane BNP Paribas analyst John Kershaw expects the dividend, which amounted to £320m in 2013-14, to be cut by 30% for 2014-15. He forecasts an interim dividend of 3.5 pence a share, down from 5.0 pence last year.
Any dividend cut is unlikely to go down well with Sainsbury's shareholders. Some 26% of its equity is owned by the Qatar Investment Authority, which walked away from a possible takeover in 2007, while the different parts of the Sainsbury family own around 11%.
In May, Sainsbury's guided that core capital expenditure in 2014-15 would be at a similar level to the 888 million pounds spent in 2013-14 that gave a capex/sales ratio of 3.4%.
The firm also guided to a capex/sales ratio below 3 percent from 2015-16 onwards.
Shore Capital analyst Clive Black reckons Sainsbury's may further cut capex guidance to £550-600m a year, focusing spending on the fast-growing convenience store sector until the wider grocery market improves.
Exane's Kershaw expects Sainsbury's to open less than 500 000 square feet of new selling space in the 2015-16 year, down from the 750 000 square feet it expects to open in 2014-15.
Shore Capital's Black also expects further cost cutting beyond the current guidance of £120-130m of savings for 2014-15. He said this process may involve substantial restructuring costs.
Analysts also reckon Sainsbury's could write down the value of its development properties and trading assets.
Coupe has already made some strategic moves since taking the helm. He has simplified the grocer's "Brand Match" price matching scheme to focus on prices at Asda rather than Tesco and made changes to its Nectar loyalty card programme.
He is also tackling the rise of the discounters by teaming up with Denmark's Dansk Supermarked to bring the Netto brand back to the UK. A first store opened in Leeds, northern England, on Thursday.
Asda is scheduled to publish third-quarter sales on November 13.
