AS A reason to be cheerful, the fact that Christmas sales were down by 0.4 per cent does not seem very convincing. But Sainsbury investors heard the news, put forward by the jaunty Justin King, and decided that it could have been a whole lot worse.

It could, and it has been: the decline over the whole of the third quarter was 1.2 per cent so, as Mr King was keen to point out, the trend was improving. But Sainsbury is still losing ground and that despite the prodigious efforts now being made to stem the customer retreat.

The question that Mr King must really be pondering is whether he has done enough to prevent the bid that has been so much talked about. The prospect of an offer of some sort has helped to buoy the shares, despite the dismal trading, so that Sainsbury does not look like a bargain. Yesterday, having edged up a little further, the stock closed at 268p, virtually half the level that it hit in 1998, but well off the levels to which it sank when the extent of its difficulties became clear.

Mr King is struggling to overcome those difficulties, the most damaging being the “modernised” warehouse and distribution system, which cost Sainsbury shareholders the best part of £3 billion and cost Sainsbury customers an immense amount of pain. One of the reasons that Mr King did have to be cheerful was the fact that he managed to have most of the goods that customers wanted on his shelves over Christmas. For a supermarket chief executive, failure on this count is reason to weep, and Sainsbury has been crying buckets over its distribution failures.

But the only way that the improvement has been achieved is by putting thousands more people on the Sainsbury shop floors and lessening dependence on the expensive new systems. Discounting prices has been another way of trying to hold on to the customers who became so disillusioned with the business.

Sainsbury shareholders, still led by the family with its 35 per cent holding, may soon have to decide whether they will continue to leave their fate in the hands of Mr King, and his chairman, Philip Hampton, or whether they would prefer to accept help, and some cash, from another source. Private equity houses have all done the numbers on Sainsbury and Allan Leighton, the former Asda boss, has left no one in any doubt of his interest in getting involved at the company.

Any bidder would be taking on Sainsbury as the market gets even tougher. Consumer spending seems set to tighten and Tesco continues to power ahead, trampling all in its path. Wm Morrison showed last week just how difficult it is to trade against this giant, producing numbers that shook the market.

If Sainsbury shareholders, including Judith Portrait, the largest holder, as trustee for Lord Sainsbury of Turville, were to be persuaded that a saviour knew how to restore the company to strength, they might be persuaded to consider a deal that would take the company private while allowing them to hold on to the bulk of their holding. However, Mr Hampton, formerly the finance director of Lloyds and BT, has intimated that money, rather than promises, is what would open the door to any bidder.

There will certainly be some who feel that Mr King should be given his chance to prove that he can put the company right. But Sainsbury investors have watched too many executives be given plenty of time to prove that the job was beyond them.

Ironically, the Royal Mail, of which Mr Leighton is chairman, yesterday produced surprisingly good growth figures. The Sainsbury family may have noticed and wondered whether they are missing something.

Customers key to LSE deal

IN the end, price will determine the fate of the London Stock Exchange. Attempts to argue that there is national interest at stake here and that the LSE should not be allowed to fall into foreign hands have failed to win much support. Virtually all the old City firms have been swallowed by overseas banks but London remains the financial centre of Europe.

Nationalistic arguments will not influence the owners of the LSE in deciding whether to sell their shares. Nor will the majority be overly influenced by what a deal might mean for the way the exchange operates in the future: only about a third of the shares are held by those who are direct customers.

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