Safeway on track to recovery

Safeway, the UK's fourth largest food retailer, has reported steady growth in its interim results, an indication, it claims, that its plans to revitalise the business are on track.

There has been much speculation in recent months about the future of the chain, which has been linked to numerous (unfounded) takeover bids, and the interim figures will no doubt be read with interest - not least as they come just a day after J Sainsbury, the UK's number two supermarket group, released its interim figures​.

Pre-tax, pre-exceptional growth at Safeway was up 4 per cent for the half to £188 million (€295.6m) after charges of £15 million relating to store refits, some £8 million more than in the previous year. Without this charge, profits were up 8 per cent. Turnover for the half was up 2.0 per cent in to £5.1 billion.

The rise in profits was helped by a 2 per cent rise in like-for-like sales, in part helped by the refitting of 40 stores. Safeway now has 161 new format stores, representing 35 per cent of its total sales area, and which on average have shown double-digit sales increases. The store refit programme is as a result increasing its pace, and the company is hopeful of further good results from its new generation stores.

Carlos Criado-Perez, Safeway's chief executive, commented: "Having attracted 1.5 million new shoppers to Safeway during the first phase of our strategy, the focus of our tactics, with over a third of our space reformatted and great progress being made with our ranges, is now also on growing customer spend. We are therefore driving the necessary investment in formats, products, services and price to secure our future growth."​

The second phase of Safeway's recovery programme has three main elements. Firstly, the company will continue to invest in the roll-out of its new format stores, a roll-out which continues to cost the company less as it learns the lessons of previous store revamps.

Secondly, the retailer said it would continue the work on improving its product range, in terms of own brands, non-food items and specialist businesses such as coffee shops, dry cleaning and photo processing. Over 900 new own brand products were launched in the first half alone, including the healthy eating range Eat Smart and new ready meal ranges, and the newly-launched lines are already worth over £300 million in sales per annum.

Finally, Safeway has continued an aggressive pricing and promotions programme design to increase the number of visitors to its stores, although it has moved away from targeting local communities with flyers and is now focusing on driving full margin sales by reducing prices across the board.

A new TV advertising campaign in Scotland is also part of the "transformation of the Safeway brand"​, and is a high profile sponsorship of the Scottish national football team.

Safeway and Sainsbury have highlighted the same areas of development in their path to recovery - new store designs, extending the product range, in particular non-food, and pushing down prices. But while in both cases these efforts seem to be paying off, the two companies are not always viewed in the same light .

While Sainsbury has suffered at the hands of Tesco, it has still managed to retain its up-market image, but Safeway has struggled to compete on the same quality footing as the top two supermarket groups. Much of that downmarket image, and indeed the company's financial woes, have often been over stated by analysts and the media - at least as far as Carlos Criado-Perez is concerned - and sometimes it seems that no matter how well the company performs, it will always be given a negative spin.

So as welcome as these latest results undoubtedly are, it may yet take some time before the market is convinced of a turnaround at Safeway, and while the takeover rumours may continue, they are also likely to remain just that - rumours.