Somerfield showing clear signs of recovery

Related tags Stores Kwik save Investment

Somerfield, like its compatriot Iceland, has suffered in recent
years because of a poor image and shabby stores. Both chains have
invested in new formats, and for Somerfield at least, this
investment appears to be paying off.

Somerfield, the UK food retailer, this week unveiled interim results which showed that it was well on the way to recovery - if not quite yet in a position to add its name to the growing number of companies bidding for the Safeway chain.

Operating profit for the six months to 9 November was £7.9 million, up from £5.6 million last year, while attributable profit of £12.5 million was much higher than the £5.5 million in the first half of last year.

Much of this good performance - which also prompted the company to pay its first interim dividend to shareholders for three years - was due to additional capital expenditure in Somerfield's stores, which in turn helped generate higher revenues. The company spent nearly twice as much on revamping its stores in the period as it did in the previous year.

Turnover for the period increased to £2,504.5 million from £2,487.1 million. Like-for-like sales growth, always a good indication of the true performance of a company, was somewhat muted at just 0.4 per cent for Somerfield, 1.3 per cent for Kwik Save and 0.8 per cent for the group as a whole, but the first 10 weeks of the second half showed just how much progress had been made, with like-for-like sales growing by a more impressive 2.1 per cent.

John von Spreckelsen, executive chairman, said the progress had also been made in tough trading conditions. "'The period has been particularly challenging, with tough market conditions and lower industry growth. Within this environment, we have been making good progress with the Somerfield store refit programme and Kwik Save now has a modern store format on trial with encouraging results. A major element of our recovery programme is based on the renewal of our retail estate and we are now moving ahead and accelerating the refit programme for both formats."

Von Spreckelsen said that better store standards, store presentation and product availability, sharper and more relevant promotions and an improving and developing product range had all contributed to the slow but steady progress.

"During the period, our own label product ranges have been enhanced to provide our customers with greater variety and choice. The product offering consists of three product range tiers, intended to meet all our customers' needs. The premium range 'So Good' has been expanded to over 200 product lines, with a further range extension planned for May 2003, and now accounts for annualised sales of £30 million.

"The 'Good Intentions' healthier choice range has also been expanded during the period, doubling to 100 products. The 'Makes Sense' range has been re-launched providing a more focused offering at competitive prices and has replaced the 'Basics' range. These extensive ranges provide an excellent variety of fresh quality products to suit all our customers' needs."

But improving the look of stores remains a major target for the company. "During the period, 31 new concept stores were opened, bringing the total to 67, and 30 stores benefited from a minor refit programme, known as 'makeovers', bringing the total number of stores benefiting from this type of investment to 148 from a total store portfolio of 590,"​ said Von Spreckelsen.

"On average, these refitted stores generated sales uplifts of approximately 18 per cent in the first year with sales growth, averaging 8 per cent in year two. In-store standards are improved for modest capital investment, thereby providing a better store environment for our customers and staff. These stores will subsequently benefit from a new format refit as the investment programme continues. For the remainder of the financial year, around 40 stores will benefit from further capital expenditure."

At Kwik Save, the hard discount store which has been something of an albatross around the neck of Somerfield ever since it was acquired in 1998, the company has been focusing on improving product range and quality, product availability and price competitiveness, among others. The 'Simply' cheapest on display range has just been launched this week and the Kwik Save own label range will be re-introduced into stores by the end of March 2003.

During the period, Kwik Save launched six new concept stores, which place a greater emphasis on fresh product ranges as well as offering a lighter, cleaner and fresher store environment. Sales uplifts ranging from 12 per cent to 60 per cent are currently being achieved, according to Von Spreckelsen. The remainder of the Kwik Save estate is also being given a makeover, with 69 stores benefiting in the first half of the year.

"During the second half year, a further eight concept stores are planned and the business model will continue to be developed to ensure that the store implementation process to be adopted for the 693 store estate is both efficient and cost effective. A further 40 stores will also benefit from a makeover in the second half,"​ he said.

Plenty to be proud of, then, in the first half, but still a lot to do, especially at a time when the UK food retailing sector is likely to consolidate further with the sale of the Safeway business - a move which is only likely to make the bigger players even stronger.

Certainly, compared to Iceland, the other main underachiever in the UK food retail sector, Somerfield is in a strong position, although both companies are working hard to convert their stores to concepts better suited to sophisticated modern consumers, but to ensure that it meets its goal of being one of five or six nationwide supermarket chains offering a wide range of choice in the years to come, Somerfield still has a long way to go.

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