Kwik Save weighs heavily on Somerfield results

- Last updated on GMT

Related tags: Kwik save, Takeover, Somerfield, Sainsbury's

Somerfield is still to find a solution to the question of how to
turn around the performance of the discount store chain acquired in
1998. The latest quarterly figures show that while Somerfield
improved, Kwik Save sales actually declined.

A disappointing performance from the Kwik Save discount store unit meant that first quarter sales growth at the UK's Somerfield​ chain was lower than expected, a disappointing start to the year for the company which seemed to have turned the corner.

Kwik Save has been something of an albatross around the neck of Somerfield ever since it acquired the business in 1998, with its 'stack-it-high, sell-it-cheap' approach to food retailing out of synch with the requirements of the increasingly sophisticated UK shopper.

But despite the beginning of a major overhaul of the business, which included the extension of a number of product ranges, not least fresh fruit and vegetables, growth at Kwik Save stores is still lagging some way behind that in the rest of the group.

Like-for-like sales for the first quarter were up just 0.5 per cent for the group as a whole, with the solid 2 per cent increase at Somerfield fascia stores almost entirely wiped out by a 1.5 per cent decline at Kwik Save.

And rather than getting better, Kwik Save's performance has deteriorated as the year has progressed. Sales for second seven weeks of the 16-week quarter were some 4.7 per cent lower on a like-for-like basis than the year before, although Somerfield said that this was partly due to the fact that 2002 figures were swollen by a one-off promotional campaign.

In contrast, Somerfield fascia stores showed 3.2 per cent growth in like-for-like sales during the same seven-week period.

"Investment in the new Kwik Save concept stores is at a very early stage, with 14 concept stores completed at the year end, so growth achieved from the refitted stores has had a negligible impact on sales performance,"​ Somerfield said in a statement.

"The investment programme is being accelerated so that by November a further 50 new concept stores will be completed out of a total Kwik Save estate of 661 stores."

But questions must be asked about the Kwik Save revamp, even at this early stage. While Somerfield fascia sales were undoubtedly helped by the fact that the refit programme is more advanced (around 120 of Somerfield's 591 stores have been refitted), they also benefited from increased traffic during the recent hot weather. Kwik Save stores did not.

So there is clearly still much work to be done at Somerfield before it can be confident that it is fully on the road to recovery, and the question of quite how to manage the Kwik Save business has still not been answered satisfactorily.

But this does not mean that Somerfield will not attract interest from potential buyers, although the likelihood of a complete takeover of the group is unlikely, not least after the company rejected a £585 million hostile bid from entrepreneurs John Lovering and Bob McKenzie earlier in the summer.

A more likely scenario is a piecemeal acquisition of some Somerfield stores, although again this is unlikely to happen until the Safeway takeover battle is resolved. But even this consolidation will not be easy, with the UK Competition Commission recently ruling that Sainsbury - which had been in line to buy 150 or so Somerfield stores if the Lovering/McKenzie takeover had been successful - would have to win approval for any acquisition.

Related topics: Market Trends

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