Sainsbury’s will provide an update on its third quarter trading on January 10, but some in the sector are looking way beyond next week to gauge the power of its recovery.

Analysts at Citi forecast that the UK’s third-biggest supermarket will deliver like-for-like sales growth of between 3.5 per cent and 4 per cent for the 12 weeks to December 29.
The analyst company said: “Hitting our like-for-like forecast should satisfy the market, although we believe that Sainsbury’s performance may look less good after Tesco and Morrisons report (due January 15 – to be confirmed – and January 22, respectively).”

Despite Sainsbury’s delivering consecutive like-for-like sales growth for nearly three years, other City analysts question whether chief executive Justin King’s growth plans are ambitious enough. In particular, rival Waitrose’s revelation this week that it will open its first overseas stores via a partnership with Dubai grocer Spinneys set tongues wagging that, before too long, King might have to dust off his business passport to examine overseas opportunities.

The City’s positive reaction to Tesco’s aggressive US roll-out suggests that a less risky and smaller overseas venture for Sainsbury’s could be well-received. In fact, Delta Two, which holds a 25 per cent stake in Sainsbury’s, said that potential overseas expansion was on the cards for Sainsbury’s before walking away from its£10.5 billion proposed bid in November.

Despite the blockbuster bid collapsing, Sainsbury’s could use Delta Two’s influence in the Middle East and sign a partnership deal with a grocer in the United Arab Emirates, following in Waitrose’s footsteps.

India is another possible option, although Sainsbury’s would probably want to test the waters via a wholesale agreement with an indigenous grocer. Waitrose also has a long-standing agreement such as this with Hypercity in India.

In late 2006, King told Retail Week that he was focusing fully on the turnaround strategy in the UK and overseas expansion was not on the cards. However, King may have to reveal his international hand at some point over the next few years, although there is no guarantee that he or Sainsbury’s will even consider the option.

The much-lauded King has done a stellar job of turning around the floundering tanker that was Sainsbury’s. He has committed himself to aggressive non-food growth plans of delivering more than£1 billion additional sales by March 2010.

But, in the crowded UK grocery market, where its market share is just over half of Tesco’s according to TNS Worldpanel, some question where Sainsbury’s rapid sales growth will come from beyond 2010.