Waitrose leads the chase

Related tags Morrisons Safeway

UK supermarket giant Waitrose has emerged as the favourite to pick
up the biggest package of Safeway stores from WM Morrison. It is
expected to buy up to 25 supermarkets for between £250 million
(€374m) and £300 million.

This package appeals to both parties. Waitrose is thought to be keen on pursuing its strategy of expansion through acquisition following impressive like-for-like sales growth of 5 per cent, which has taken sales to £2.7 billion. In 2000, the supermarket giant bought 11 former Somerfield stores.

Morrisons must sell 52 supermarkets to fulfil Competition Commission conditions on its acquisition of the Safeway chain, which was completed earlier this month. Bob Stott, Morrisons joint managing director, was quoted recently in the UK's Independent as saying that the group was close to offloading "one package"​ of the 52 Safeway stores.

Morrisons chairman Sir Ken Morrison is believed to favour a sizable deal with Waitrose because it will limit his more comparable rivals, Tesco and Asda, from strengthening their footholds in his Northern heartland. Waitrose has no store north of Newark and has built an image based on quality food rather than low pricing.

Morrisons paid cash for its £3 billion acquisition of Safeway, and starts the process of integrating the business with a balance sheet completely debt free, apart from its usual overdraft facility, and cash in hand of £206.6 million - a strong position from which to start given the inevitable increase in capital expenditure this year. The group will also benefit from the proceeds from the sale of the 52 stores, which it is obliged to offload, a further addition to its cash pile which should again help ease the cost of integrating Safeway.

Given Morrisons' traditional tight ship, it is unlikely that the refitting of Safeway's stores will have the same detrimental effect on sales as did the recent reorganisation at Morrions' closest rival, Sainsbury. The decision to revamp virtually the entire store portfolio in one go saw customers switch their allegiance to rival stores as a result of the constant upheavals, putting a major dent in Sainsbury's sales figures as a result.

And with any change at Safeway likely to be for the better, Morrisons should begin to feel the benefits extremely quickly, further narrowing the gap with Sainsbury whose third place in the retail rankings is looking increasingly under threat.

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