Analysis By Jeff Randall BBC business editor

Sir Peter spent big but was it all a "tragic waste"?

Ever since Napoleon described Britain as a "nation of shopkeepers", the golden rule for grocers has been: stock your shelves with goods that customers want, at prices they can afford.

It's such a fundamental concept that it's hard to imagine any leading retailer not doing it by reflex. Except, that is, Sainsbury's.

It has been obvious for months now that Sainsbury's supply chain is in disarray.

The company's 14 million weekly shoppers often cannot find the basics that they are entitled to expect from a top supermarket.

Frank speaking

Today, after months of excuses, Sainsbury's finally owned up to its life-threatening dysfunctionality.

In a statement of unusual frankness, its new chief executive, Justin King (he joined in April), did away with business-school blether and came clean on what the company's problems really are.

Hired from Marks & Spencer (and having worked at Asda before), Mr King has the benefit of being untainted by the previous regime Jeff Randall

Put simply: it's all the fault of the last lot.

Mr King's predecessor, Sir Peter Davis, blew billions on IT systems and automated depots that were too complex and couldn't deliver the goods to the shops.

In a damning report on previous management's mistakes, Sainsbury's admits that its "costs today are a greater proportion of sales than they were four years ago".

Even more depressing, Sainsbury's product availability levels are currently worse than before Sir Peter embarked on his spending spree.

In short, Sir Peter's bold plan to revolutionise Sainsbury's behind-the-scenes operations descended into a comedy of errors.

Not surprisingly, Sainsbury's is now renegotiating terms and conditions with its systems consultant, Accenture.

Back to basics

Mr King admitted to the BBC that much of what Sir Peter and his team had "invested" in the business turned out to be a tragic "waste". Ouch!

In order to wipe the slate clean, Sainsbury's is reporting �550m of exceptional costs (thereby obliterating this year's profits), including writing off �140m of useless IT assets and �120m of automated equipment for depots.

Sir Peter's "Business Transformation Programme" had, said Mr King, distracted Sainsbury from focusing on "the customer offer".

Sainsbury's customers still want to see the company succeed

So now, the company that once symbolised middle-class aspirations is returning to its roots.

Sainsbury's will focus on selling better-quality foods at lower prices; making sure that goods are well displayed and not dumped in store rooms.

For the time being, Sainsbury's has dropped its advertising slogan, "Good food costs less at Sainsbury", because the message is just not true.

Mr King, however, is betting his career that very soon it will be.

Hired from Marks & Spencer (and having worked at Asda before), Mr King has the benefit of being untainted by the last regime. He has set out a three-year recovery plan and it's hard not to be drawn in by his boyish enthusiasm.

In his favour, there is still considerable consumer goodwill towards the Sainsbury's brand. Research shows that loyal customers do want it to win.

Pressure for profits

But the City is famously impatient.

The company's 14 million shoppers often have trouble finding what they want

For many in the Square Mile, the long-term means after lunch.

Professional shareholders won't expect Sainsbury's turnaround to be completed by this time next year, but they will want to see significant progress before Christmas 2005.

Despite its gloom-laden contents, Mr King's wide-ranging review met with initial approval from investors: Sainsbury's shares jumped by nearly 4%.

But it's easy to see why sceptics remain. Sainsbury's has been cooking up cunning plans to revitalise the business for the past 10 years; yet all it has delivered is relentless decline.

Its position has been made immeasurably worse by ferocious competition from two of Britain's best managed companies: Tesco and Asda.

While rivals were floundering, they raised their game to such an extent that their cut-price boots are now firmly on Sainsbury's corporate windpipe.

What's more, they intend to keep them there.