Continued recovery will increase Somerfield interest
like-for-like sales in the last year. The steady progress made by
the company over the last few months is only likely to increase
speculation about takeover bids.
Somerfield, the UK food retailer, has reported a slight upturn in like-for-like sales in the year to March, another step on the road to recovery after a turbulent few years and one which could increase the level of interest in the firm from potential buyers.
Group like-for-like sales growth for the full year was 1.0 per cent, with second half growth reaching 1.3 per cent. Total sales are estimated at £5.0 billion (€6.99bn) and increased by 0.7 per cent.
There was like-for-like growth for both the company's fascias. Somerfield's sales rose by 0.9 per cent for the year and by 1.5 per cent in the second half, while Kwik Save posted an annual improvement of 1.2 per cent and a second half gain of 1 per cent.
Somerfield said that major product range changes at Kwik Save had disrupted availability in February and March, but that the the new value range 'Simply', a new own label range, and the destocking of a number of other products was already paying dividends. The new products are already outselling those they replaced and have better margins, it said in a statement.
The company has also continued the major overhaul of its stores, in particular those under the Kwik Save banner. Six new concept stores opened in the first half, with a further eight added in the second half, and both groups of stores are trading substantially ahead of their pre-refit sales, the company said.
Just last month, Somerfield's board rejected a takeover bid for the firm which would have valued the company at around £500 million on the grounds that this did not represent the true worth of the company. A higher bid is still thought to be a possibility.
The rejection reflected Somerfield's recent reappraisal of its strategy, emphasising the strength of the brands, the new value brought to the group's store by the refit programme, the size of its store portfolio and the opportunities for further cost reductions and improved efficiencies.
It is ironic that Somerfield's efforts to lift itself out of the downward spiral it found itself in after the Kwik Save acquisition have led to expressions of interest in buying the company. Now that it seems to be back on the right path (although it still has a relatively high debt level related to the Kwik Save deal), it has less need of the external investment which would have helped it recover more quickly had it been forthcoming earlier.
But the question still remains as to whether the company can continue to go it alone, especially in a market where competition is already intense and is only likely to become more so as a result of the Safeway merger. While Somerfield is not likely to be as attractive an acquisition to the other retail groups - not only because it is a smaller company but also because of the same competition issues which are dogging the Safeway deal - a non-retail takeover could be a possibility.
Any such deal would have to be at the right price, however. The continued improvement at Somerfield clearly puts it in a much stronger position to choose its partners carefully, but it is not out of the woods yet, and it may finally decide that its future lies in safer hands as part of a larger group.
