WAS SAINSBURY PULLBACK A RETREAT?

JAMES FALLON

LONDON -- J. Sainsbury plc here last week insisted that its decision to sell its stake in Giant Food, Landover, Md., doesn't represent a withdrawal from the U.S. food retail market, where it continues to own Shaw's Supermarkets, East Bridgewater, Mass.

But analysts were left wondering what it did mean.

The $611.2 million that Ahold, Zaandam, Netherlands, is paying for Sainsbury's stake represents a profit of about $163 million on Sainsbury's three-and-a-half year investment in Giant, Sainsbury said. Ahold is also buying the controlling stock of Giant Food held by the corporation set up by the chain's late chief executive officer Israel Cohen.

Sainsbury's chief executive Dino Adriano said, "Taking control of Giant was a desirable but not essential element of our U.S. growth strategy. Today's deal, at this price, is in our shareholders' best interests. We believe that the Sainsbury group can add value in the U.S. food retail sector and we are focused on our stated priority of improving Shaw's performance. This is progressing well."

Yet the sale of the Giant holding would appear to undermine Sainsbury's ability to be a major player in the U.S. food market unless it hits the acquisition trail itself, analysts said. This is unlikely to be welcomed by British analysts, many of whom have been pushing Sainsbury to pull out of the United States in order to focus on turning around its U.K. food retail business. Sainsbury has suffered over the last two years in competition with Tesco plc, which is now the clear leader in terms of market share.

The troubles at Shaw's, which has struggled with its move into the Connecticut market, have further increased pressure on Sainsbury to withdraw from the United States. Both Adriano and David Bremner, the Sainsbury director responsible for the U.S. operations, have insisted the company has no plans to do so, however.

"We are committed to improving performance at Shaw's and have a clear, long-term strategy for our involvement in the U.S. market," Adriano said only two weeks ago at the company presentation of its annual financial results.

The purchase of the Giant stake in 1995 -- which was overseen by David Sainsbury, who is retiring as the company's chairman in September -- seemed to indicate a long-term goal of linking the two chains into a major force in food retailing along the Eastern seaboard. Shaw's, it was thought, would gradually push down from its base in New England while Giant would move into Pennsylvania and New Jersey from its traditional stronghold in Maryland and Virginia. While Giant has expanded northward, Shaw's abandoned plans last year to move out of New England when it sold the six sites it had acquired in northern New York state.

Analysts now believe Shaw's is too small on its own to be able to compete in a U.S. market that is rapidly consolidating on a handful of regional players. Without the Giant stake, Sainsbury's U.S. sales are about $3 billion.

Adriano and Bremner have continually said that any future investment by Sainsbury in the United States would have to be judged against other opportunities throughout the retail group, both in the United Kingdom and overseas.

Analysts believe the new Sainsbury management might be more focused on improving performance in the United Kingdom than on future expansion in the United States. This might be even more the case now that David Sainsbury is retiring. He was one of the main drivers of the company's move into the American market.