Morrisons shows strategy would work for Safeway

Double-digit sales growth in the first half of the year is further evidence that Morrisons​ has the right business model to turn things around at Safeway, should it be given the green light to acquire the retailer later this month.

Morrisons sparked off the bidding war for Safeway with an initial offer for the company - and is still considered to be the most likely buyer - and today reported sales of £2.48 billion for the first six months of 2003, up 13.7 per cent excluding petrol sales.

Like-for-like sales at the Yorkshire-based group were ahead 9 per cent, and this is seen as one of Morrisons' great strengths: in comparison, both Safeway's and Sainsbury's like-for-like sales growth was just 0.3 per cent in the first quarter of the year. The company also believes it has the right quality and service mix: average customer transactions per store increased by 3.5 per cent and average transaction values were up by 3.3 per cent - figures which Safeway's executives would die for.

Morrisons might be a fraction of the size of market leader Tesco - which reported interim sales of £14 billion earlier in the week - but in terms of growth, the gap is extremely narrow. The UK's number one supermarket group posted first half growth of 14.2 per cent from its UK operations, only slightly higher than Morrisons. Both companies were well ahead of both Safeway and Sainsbury once again.

Pre-tax profits at Morrisons were up 10.2 per cent to £126.2 million, after allowing for costs of £6.6 million related to the bid for Safeway - failure to acquire the chain could clearly prove costly for the group - and for increased pension costs. Gross margins decline slightly during the period as costs increased at a faster pace than sales.

Despite the delay in the bid for Safeway - and Morrisons was surprised that its offer for the company was referred to the competition authorities along with those from much larger rivals Tesco, Sainsbury and Asda - the company has continued to grow during the first half, opening five new stores during the half and extending or refurbishing three others.

The good first half performance was also built on the diversity of the company's product offering, Morrisons suggests. With premium ranges, value offerings and an increasingly broad non-food selection, the company has a product mix which appeals to a wide selection of shoppers - something which larger chains such as both Sainsbury and Safeway have been slow to appreciate.

The second half will be an extremely interesting one for Morrisons, with the decision expected later this month on the Safeway deal. Trading in the first five weeks of the half has been excellent, with sales up 16.6 per cent on the same period a year earlier and like-for-like sales up 9.1 per cent, excluding petrol.

But the company warned that prices were expected to rise in the second half after a long period of deflation, and consumer spending could fall as a result. Nonetheless, and regardless of whether it emerged successfully from the Safeway bidding process, the company said it remained confident of further growth for the year.