Safeway results reflect future uncertainty

- Last updated on GMT

Related tags: Safeway, Tesco, Sainsbury's, Asda

The latest full year results for Safeway - probably the last before
the company is bought out by one of its rivals - were solid if
hardly spectacular, as the uncertainty over the future ownership of
the group took its toll on store refits and supplier relationships.

Full year sales at Safeway​, the British food retail group, increased by 1.3 per cent in 2002/03 to £9.5 billion (€13.4bn), a solid if less-than-spectacular performance from a company which is currently attracting considerable interest from rival groups.

The company said that profit before tax and exceptional items of £335 million was in line with its estimate published in April, and that it was up 37 per cent since the launch of Safeway's new commercial strategy in 1999/00.

Carlos Criado-Perez, Safeway's chief executive, commented: "The profit outcome for the year and the overall stability of our current trading have been achieved, in challenging circumstances, through a total focus on the needs of our 10 million customers and through the skill and commitment of our 85,000 people. I remain confident that we are ready to meet the challenges which lie ahead."

A Competition Commission investigation into the likely impact of a takeover of Safeway by Tesco, Sainsbury, Asda or Morrisons is expected to report in August, but the ongoing probe is already affecting Safeway's business. For example, operating profit for the year decreased by 4 per cent to £398 million, largely as a result of lower second half gross margins caused by lower-than-expected funding levels from some suppliers who were concerned about the future ownership of the business.

The uncertainty over the company's future has also forced it to adapt its own strategy of growth, with a marked slowdown in the company's store refit programme during the second half of the year.

"We have adopted a more cautious approach to investment in large-scale projects,"​ said Criado-Perez. "We are planning to open five new stores in the new financial year, in addition to the six which were opened last year, and maintain a modest forward development pipeline.

"The performance of reformatted stores continues to be strong, with comparable sales in their first year 9 per cent higher and, as a whole, delivering significantly improved profitability compared with un-reformatted stores. However, given the current corporate situation, we have scaled down the reformatting programme significantly and focused it on a small number of megastore and other store extensions."

So the emphasis is really on business as usual during the period of uncertainty. As well as the store refits, the company has continued its brand development work, focusing on the ready meal and convenience ranges. As well as a range of new products, existing ranges have been repositioned and the quality and packaging have been upgraded.

Among the new additions to Safeway's ready meals offer were the American, Italian and Traditional ranges, while the Eat Smart healthy eating range was relaunched and extended. The convenience food offer was also strengthened by the launch of Eat Street, aimed at the rapidly growing demand for food and drink on the go.

The premium range, The Best, was also relaunched with over 300 lines, with a further 100 products added in April, including many new ready meals. During the new financial year, Safeway has already launched a new range of vegetarian ready meals.

Whoever emerges as the eventual buyer for Safeway will gain control of a company with, at best, a stable trading performance. Like-for-like sales growth, adjusted for the different timing of Easter this year, was 0.8 per cent in the first six weeks, but Safeway said it expected sales growth to slow during the remainder of the first quarter compared to a particularly strong first three months in the previous year.

But then again, the bidders for Safeway are not particularly interested in the business as a going concern, with only Morrisons likely to maintain the Safeway name if its bid is successful, and then only for some of the smaller stores.

The real prize will be Safeway's store portfolio, which will give the major groups a chance to expand in a market where growth is notoriously hard. All the other bidders would most likely convert Safeway's stores to their own fascia and trading strategy - making Safeway's own results almost an irrelevance.

Related topics: Market Trends

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