Sir Peter failed to revive Sainsbury's

Why did he go?

Sir Peter Davis has been forced out in the latest show of muscle by big institutional shareholders.

The final straw for City investors was a £2.4m bonus awarded for last year.

Their anger was not so much over the size of the bonus as that it came at a time when Sir Peter was overseeing falls in the company's profits, share price and market share.

Does this draw a line under Sainsbury's problems?

Not yet. Sir Peter's resignation has been accompanied by a warning that profits in 2004/05 will be significantly below analyst forecasts.

The recently-installed chief executive Justin King will be under severe pressure to start improving the store chain's operating performance.

On the plus side for him, Mr King will now have a free hand to devise and drive strategy without former chief executive Sir Peter looking down from the chairman's office.

What's Mr King's plan?

He has already begun to overturn some of Sir Peter's policies, for example by cutting prices. This will inevitably lower the store's profit margin but many analysts view it as an essential move if Sainsbury's is to compete again in a meaningful way with Tesco and Asda.

In the longer term, Mr King will have to overhaul Sainsbury's supply chain. An acceptance of slimmer margins should mean a drive to greater efficiency and increased sales volumes.

There is also the matter of Sir Peter's bonus to resolve. Sainsbury's statement refers to "possible amendments" to the award but says it was not possible to reach agreement with him. A battle between both sides' lawyers is now in prospect.

But wasn't Sir Peter supposed to be the saviour of Sainsbury's?

He was. "The man from the Pru" was appointed to great fanfare. He promised to reinvigorate Sainsbury's both for customers and workers.

But, after four years, he has failed. Sainsbury's has been overtaken for market share by price-conscious Asda, is under pressure from the newly-combined Morrison/Safeway, beaten for quality by Waitrose and M&S and beaten out of sight on price and quality by market leader Tesco.

What happens now?

Sainsbury's has acted quickly by immediately appointing Philip Hampton to succeed Sir Peter.

Mr Hampton, 50, is a former finance director of BT, who was highly regarded by shareholders and once thought likely to become chief executive of the telecoms firm.

He was later finance director of Lloyds TSB.

With his appointment, Sainsbury's will be hoping finally to have alighted on a chairman that will please shareholders.

The botched appointment of Sir Ian Prosser - picked to succeed Sir Peter next year but dropped after an investor revolt - had made Sainsbury's look like a company that could do nothing but irritate its shareholders.

And how bad is Sainsbury's business?

The company is struggling against its competition but it is no basket case. Sainsbury's still makes an annual profit of £670m and has sales north of £15bn.