Grocer in talks with possible franchise partners to expand beyond its UK base.

Sainsbury’s has held talks with potential partners about launching in the Middle East as it mulls additional revenue streams to fuel long-term growth.

Senior Sainsbury’s executives have spoken to possible franchise partners in the region over the past year, according to several industry sources. One potential partner is understood to be local retailer Fawaz Alhokair and talks are said to be ongoing, said a Middle East source.

The revelation is likely to reignite the debate about the scale of Sainsbury’s ambitions under the stewardship of chief executive Justin King, who has transformed the grocer since taking the helm in March 2004.

Sources close to Sainsbury’s said its interest in a regional venture was initiated before Delta Two – the Qatari-backed investment fund that has a 25 per cent stake in the grocer – attempted a takeover last summer. The source added that Sainsbury’s remained interested in the Middle East, despite the deal’s collapse in November.

Last month, rival grocer Waitrose unveiled a tie-up with Dubai-based grocer Spinneys to open 20 stores in the United Arab Emirates by 2010.

Sainsbury’s formerly had stores in the US and Egypt, but exited those markets to focus on its core UK business, which was under increasing attack from rivals.

Evolution analyst Freddie George said: “Sainsbury’s has got to look longer term at diversifying outside the UK. The UK market is very mature, apart from in non-food where the opportunity is very big for it.”

Exane BNP Paribas analyst Tim Attenborough said: “It is a sensible, easy and low risk means of expansion. I would assume it would be a straightforward franchise agreement or tie-up, so it should not be committing a large amount of capital and it has a strong brand.”

The timeline for any Middle Eastern launch, which could also take the form of an agreement to supply Sainsbury’s goods to a local retailer on a wholesale basis, remains unclear.

A Sainsbury’s spokeswoman said the grocer had “no plans” regarding the Middle East.

Non-food battle hots up

Sainsbury’s is thought to be gearing up to launch a combined non-food catalogue and web site to take on Asda and Tesco.

A source close to the grocer said Sainsbury’s board has given the initiative the go-ahead provisionally. “There is a firm commitment to do it – the catalogue is part of the growth plans,” he said.

The catalogue plans are understood to be linked to Sainsbury’s moving its non-food operation to Coventry last summer, but a name for the catalogue operation and launch time frame are unclear. The company said no firm plans were in place yet.

Tesco launched its Direct arm in September 2006 and Asda has committed itself to a full roll-out of its own Direct operation.