Although J Sainsbury issued a profits warning in March, the supermarket’s head of group legal services David Thurston remains optimistic about the future. “The business has gone through a difficult time, which has been quite painful,” he says. “But there’s a lot of will to get it right and we’re determined to make it work.”
Thurston is also eager to defend Sainsbury’s market position in light of recent predictions that it could slump to become the fourth-largest supermarket group, behind Tesco, Asda and Wm Morrison.
“There’s no doubt that Sainsbury’s was doing remarkably well through the 1980s and 1990s and Tesco was struggling. But Tesco was gradually making up ground and eventually overtook Sainsbury’s – then Asda, which was taken over by America’s Wal-Mart,” explains Thurston. “But as far as Sainsbury’s was concerned, I think one of the problems we had was that we were a bit slow off the mark in recognising problems and dealing with them.
“We’d also underinvested in a number of areas: we had a distribution system that didn’t work as well as it should, outdated IT systems and stores that were in some cases looking a bit tatty and not well cared for.”
Thurston, though, argues that Sainsbury’s is introducing a number of changes to add-ress these problems as part of its three-year transformation programme. “We’re review-ing the business from top to bottom to make sure we’ve got the right structures in place for the future,” he claims.
As part of the programme, Sainsbury’s has radically restructured its 21-strong legal department. As reported in The Lawyer (26 April), under the new structure, which came into effect at the beginning of April, Sainsbury’s legal department has been split into three teams, comprising advisory, property and operations.
The six advisory lawyers handle corporate work and matters relating to trading, marketing, competition, commercial and intellectual property. The six operations lawyers, led by Nick Grant, handle issues relating to distribution and how the stores operate, such as processes, procedures, compliance and employment matters.
Prior to the reorganisation, the legal department was split according to each lawyer’s expertise. “This is quite a novelty for us, because historically we’ve been organised in the same way a law firm’s run. The way we’re structured now means we’ve got a clear focus on
serving the stores,” explains Thurston.
Although the restructuring also resulted in four lawyers leaving the department (two were made redundant and the other two retired), it also saw the creation of two new positions in the legal department.
Sainsbury’s is currently looking for a senior lawyer to head the advisory team, a vacancy currently being filled by Anne Johnson, a secondee from Denton Wilde Sapte (DWS). Meanwhile, the supermarket has just appointed Katherine Kinch from Clifford Chance to lead the property team.
Sainsbury’s is hoping that by hiring its first in-house property lawyer it can slash its costs in this area. Historically, the supermarket outsourced all its property work to external advisers, but is now planning to review its property panel in the autumn.
“Now that we plan to do more property work in-house, we’ll be doing a review of our property advisers later this year,” says Thurston.
The supermarket has a seven-strong property panel comprising Addleshaw Goddard, Scottish firm Biggart Baillie, CMS Cameron McKenna, DWS, Lawrence Graham, Northern Ireland-based L’Estrange & Brett and SJ Berwin.
Sainsbury’s farms out the lion’s share of its property work to Addleshaws because of its longstanding relationship with legacy firm Addleshaw Booth & Co, and DWS, which also handles corporate work.
“Historically, the use of firms wasn’t as rigorously tested as it could have been. Now we’re responsible for legal services for property, we’ll be looking at our relationship with those firms and will try to get more consistency of approach and the best value,” says Thurston.
In addition to the property panel, Sainsbury’s also has rosters of corporate and employment advisers. The former panel comprises DWS and Linklaters, while the latter is made up of Evershedsand McDermott Will & Emery. However, Thurston says there are no plans to change the makeup of these panels.
Although historically Sainsbury’s has farmed out corporate work to DWS and Linklaters, last summer the supermarket rewarded Addleshaws with its first quasi-corporate instruction. As revealed by The Lawyer (9 June), last June the firm was brought in to advise Sainsbury’s on a joint venture with Shell UK and also on the disposal of J Sainsbury Developments (JSD).
Addleshaws corporate partner Stephen Houston is leading the team advising on the joint venture, which will see Sainsbury’s expand its fuel and convenience store operation to 100 existing Shell forecourts across the UK. The move followed a successful trial at six sites, combining Shell’s branded forecourts and Sainsbury’s ‘Local’ stores’ format.
Meanwhile, Addleshaws was appointed to advise on the disposal of JSD after pitching against other relationship firms, including Camerons, DWS, Lawrence Graham, Linklaters and SJ Berwin. That deal was led by Sainsbury’s relationship partner Derek Tolley, although Thurston handled a lot of the work personally.
Although Thurston’s philosophy is not to chop and change advisers, that is not to say he will not use other firms occasionally. For example, he is currently experimenting with Herbert Smith in relation to a £9m claim against one of the Sainsbury’s stores. Thurston says Herbert Smith was already acting for the supermarket’s insurer, so it made sense to carry on using the firm.
Many of Sainsbury’s recent troubles stem from the supermarket price war that was triggered following Morrisons’ successful £2.9bn takeover of Safeway in March. A few days after Morrisons announced a recommended offer for Safeway, Sainsbury’s triggered a bidding war by indicating its intention to bid for the supermarket.
But in March 2003, the Office of Fair Trading (OFT) decided to refer Sainsbury’s, Tesco’s and Asda’s bids – as well as Morrisons’ – to the Competition Commission. In September, the Competition Commission gave Morrisons the green light to proceed with its offer provided it sold 52 Safeway stores.
“Sainsbury’s is underrepresented in the North and Scotland because it was slow in spreading its wings across the rest of the country. Consequently, we felt Safeway would have been a good fit and would have made us a more effective competitor. But the Competition Commission decided what happened and we know the result,” says Thurston.
Thurston instructed Linklaters corporate partner David Barnes to advise Sainsbury’s on corporate aspects of the Safeway deal, and will probably bring the magic circle firm on board if it pitches successfully for the next tranche of Safeway stores that Morrisons has undertaken to divest.
Although Linklaters also handled the competition aspects of the deal, Thurston handles some of this type of work in-house. For example, he is currently working on the review of the Supplier Code of Conduct, following the OFT’s announcement that it is planning on auditing all the major supermarkets to ensure they are treating suppliers fairly.
The legal department was also heavily involved in negotiating the exclusive agreement between Sainsbury’s and the Carphone Warehouse, under which the company took responsibility for all aspects of Sainsbury’s mobile phone customer management, including credit checking, network connection, logistics, billing, collection and customer care. The service, which was launched last year, built on Sainsbury’s existing mobile phone offering and represented a logical further development of Carphone Warehouse’s strategy of managing mobile customers on behalf of third parties.
“We had an arrangement that was our own service using an intermediary that went into administration. So we had a customer offer that was about to have the plug pulled. As such, we had to work very hard with the administrator to look for alternative providers,” says Thurston.
Sainsbury’s recent run of bad luck has not dampened Thurston’s spirits. Indeed, quite the opposite. “The retail sector is the most extraordinary and fascinating place to work, because when I come in every morning I never know what I’m going to be doing. And as for the future, who knows what’s going to happen? That’s why it’s a great place for a lawyer,” he concludes.
Head of group legal services
|Annual turnover||£18.5bn (as at May 2003)|
|Head of group legal services||David Thurston|
|Reporting to||Group secretary Tim Fallowfield|
|Main law firms||Addleshaw Goddard, Biggart Baillie, CMS Cameron McKenna, Denton Wilde Sapte, Eversheds, Lawrence Graham, L’Estrange & Brett, Linklaters, McDermott Will & Emery and SJ Berwin|