Sainsbury’s CEO Is Out of the Money and Into the Hot Seat

(Bloomberg) -- A year ago, Mike Coupe was singing “We’re in the Money.” Now he’s in trouble.

After J Sainsbury Plc dropped its plan to buy Walmart Inc.’s Asda in the face of regulatory opposition, the U.K. grocer’s chief executive officer is left without a Plan B. Instead of leading the country’s biggest supermarket operator, he must rebuild a company that’s losing ground to market leader Tesco Plc, online giant Amazon.com Inc. and German discounters Lidl and Aldi. His job could be on the line.

“Clearly people will ask questions about Coupe and what his future is at Sainsbury’s,” Sanford C. Bernstein Ltd. analyst Bruno Monteyne said by phone. “People will wonder if it’s time for a new pair of hands.”

The U.K. antitrust authorities’ move to block the deal Thursday shines a new light on Coupe’s gaffe last April. After the company announced the 7.3 billion-pound ($9.4 billion) deal that would have created the country’s largest supermarket chain, the CEO was caught by a hot microphone singing the song from the musical “42nd Street.”

At the time, Coupe brushed the incident aside, saying he had been to see the show and was trying to calm down ahead of a TV interview. Now, with Sainsbury shares falling as much as 6.4 percent after the deal collapsed and his unguarded moment looking more like hubris, he faces a tougher audience than the U.K.’s viewing public: investors.

Sainsbury’s CEO Is Out of the Money and Into the Hot Seat

Sainsbury’s shares are down more than 30 percent since the deal was announced, and its market share has declined by 0.6 percentage points in the last 12 months, to 15.3 percent. Aldi and Lidl have gained ground, Tesco has used its scale to push down prices and more people are shopping online from the likes of Amazon and Ocado Group Plc.

Coupe, 58, has previously said that combining with Asda would not only help Sainsbury meet its looming challenges but would also deliver cost savings for consumers. The company said it would cut the price of daily essentials by 10 percent. Regulators disagreed, saying consumers could get squeezed, and Sainsbury now faces a steep challenge to convince the market that it can succeed on its own.

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Shoppers are concerned that the company took its eye off running its stores, with social media users flagging product shortages leading to gaps on shelves. The grocer may have to plow significant investment into freshening up its outlets.

Without the benefit of Walmart’s massive scale, which would have given Sainsbury greater leverage with suppliers, the U.K. grocer will have to divert its own resources into price cuts in order to remain competitive with Tesco and discounters. That could eat into profit margins.

Sainsbury’s said it believes the Competition and Markets Authority reached the wrong conclusion in its analysis of the proposed merger and had ignored the changing nature of Britain’s grocery industry.

‘Great Business’

“Sainsbury’s is a great business and I am confident in our strategy,” Coupe said in a statement. “We are focused on offering our customers great quality, value and service and making shopping with us as convenient as possible.”

All eyes will be on Sainsbury’s full-year results next week, where investors will be seeking evidence that it has slowed the recent erosion and can withstand growing competition from the discounters as well as a resurgent Tesco and the No. 4 player, Wm Morrison Supermarkets Plc.

Clive Black, an analyst at Shore Capital, said Sainsbury’s board should share blame for the Asda debacle, and replacing the CEO wouldn’t make sense as the company seeks to bounce back.

“Given the poor trading performance of Sainsbury’s supermarkets, the core of the group, it would hardly be helpful, to our minds, to change the leader at this juncture,” he said in a note.

©2019 Bloomberg L.P.