Analysis By Jeff Randall BBC business editor

Sainsbury's has ditched its chairman and issued a profit warning - but where did it all go wrong for the company that once was Britain's favourite grocer?

Sir Peter failed to deliver where it counts

This wasn't how it was meant to be. The last thing troubled Sainsbury needed was a chairman who had gone beyond his sell-by date.

When Sir Peter Davis was hired by Sainsbury four years ago, he was hailed as the prodigal son returning to a business where his career had begun.

Davis was brought back to restore his alma mater to its erstwhile glory - and many in the City had faith he could do it.

Sainsbury had been on the slide through much of the 1990s, though many inside the company seemed unable to recognise the pace at which its market leadership was being eroded.

Among the problems facing Sir Peter were a rampant Tesco (which became Britain's supermarket top dog in 1995), an outdated distribution system, a portfolio of stores in dire need of refurbishment, and a growing perception among shoppers that Sainsbury no longer offered value for money.

Making life taste better for shareholders?

No sooner had Sir Peter arrived than the company's share price started to rise.

1. Joins as chief executive 2. Becomes chairman 3. Stands down Current Sainsbury's share price

The stock market seemed convinced that he would make life taste a little better for shareholders, as well as customers.

That heady optimism now looks woefully misplaced.

Having spent more than £2bn on modernising the company's logistics and sprucing up its stores, Sir Peter failed to deliver where it counts.

The share price has fallen back (it is now about 40% below its peak), and last year saw a drop in sales, profits and market share.

Worse still, Asda, once the sick man of the sector, has pushed Sainsbury into third place.

At this rate of decline, it won't be long before Sainsbury finds itself struggling in the wake of the recently combined Morrisons and Safeway.

Shareholder fury

All of which makes Sir Peter's £2.4m bonus (in shares) for last year look like another unjustifiable example of corporate fat-cattery.

Why Sir Peter's fellow directors are complaining now, rather than when the contract was drawn up, is a question many shareholders would like answered

Many professional investors were furious, arguing that the targets he had to meet to earn the pay-out were too soft.

Put simply, they wanted their money back.

Had Sir Peter agreed to make a grand gesture by waiving his bonus, or donating it to charity, he would almost certainly still be Sainsbury's chairman.

But he insisted that he was entitled to the payment, the board had signed it off, and what was his he was keeping.

Sir Peter was right in one respect, at least: he had not sneaked in through the back door and helped himself to the shares. The board knew about the bonus and had approved the payment.

Why Sir Peter's fellow directors are complaining now, rather than when the contract was drawn up, is a question many shareholders would like answered.

The King of Sainsbury

Sainsbury's Justin King has tried to lower expectations

With the executive doors at Sainsbury opening and shutting faster than a busy check-out till, Sir Peter's job has gone to Philip Hampton, a well respected City figure who used to be finance director of BT and Lloyds TSB.

Hampton will be a safe pair of hands as the company tries to calm down disgruntled institutions.

But the much harder task of improving Sainsbury's retail performance rests with Justin King, the former Asda trainee who was poached recently from Marks & Spencer's food division.

King has it all to do. Among his trickier tasks will be restoring the confidence of staff, who were outraged to learn that their Christmas cash bonuses had been scrapped (while reading about Sir Peter's shares bonanza).

But King's biggest challenge will be going head-to-head with Tesco, one of Britain's most admired companies, and Asda, owned by Wal-Mart, the world's biggest retailer.

When it comes to competition, they don't come much tougher than those two.

High on King's list of priorities will be to kick-start Sainsbury's non-food offer in order to catch up with the success that Tesco has had with televisions and DVDs, and Asda's extraordinary expansion of its George clothing range.

Unlike Sir Peter, King has not made the mistake of allowing expectations to outstrip his capacity to deliver. The announcement of Sir Peter's departure was coupled with a warning from Sainsbury that this year's profits will be "significantly below" City forecasts.

Heavy is the head that wears the crown. Sainsbury's King, like all others, knows that only too well.