Sainsbury's woos with bond for customers

By Neil Craven for The Mail on Sunday
Updated: 03:56 EDT, 29 May 2011

Supermarket giant Sainsbury's may launch a savings bond for customers who are struggling to find bank accounts with interest rates that beat inflation.

Inflation-beating strategy: Sainsbury's chief Justin King is hoping to boost customer loyalty with a new bond

The strategy is understood to be the idea of chief executive Justin King, who believes the scheme could boost customer loyalty.

The idea has been floated before but King now wants the board to examine the proposal again in detail and a decision to go ahead could be made as soon as the summer.

In March, John Lewis Partnership raised £50m in just 11 days with a bond restricted to holders of its store card and staff.

Investments of between £1,000 and £10,000 over five years attracted a fixed rate of 4.5% in cash with a further two% in John Lewis gift vouchers.

It is believed that the total value of the Sainsbury's bond could be higher than that issued by John Lewis in view of the security provided by Sainsbury's recently revalued £10.5bn property portfolio and its wider customer base. That would underpin the bond offer. Sainsbury's declined to comment.

Tesco launched a £125m bond paying 5.2% in February with a minimum investment of £2,000, but it was not restricted to its customers.

A spokesman for Tesco Bank said: 'We were interested to see that demand was so positive and it was still strong when we closed the scheme after two weeks.'

The trend for supermarkets to branch into financial services has accelerated in the past three years in the shadow of the global banking crisis. And at a time of vicious price competition, the supermarkets are desperate to keep their core shoppers loyal.

One supermarket source said: 'The question for supermarkets is whether they take a more cautious approach to financial and banking services and effectively act as brokers for service providers or launch their own products.

Tesco has said it plans to begin offering current accounts and mortgage lending. However, it has faced delays as the Financial Service Authority ponders approval.

Meanwhile, Asda is understood to be reviewing its range of financial services but has so far stopped short of taking its interests in house.

Other retailers such as Boots are also believed to have explored opportunities but have so far failed to embrace the sector in the same way as traditional grocers.