Revamp helps Somerfield maintain growth momentum

- Last updated on GMT

Related tags: Kwik save, Somerfield, Takeover, Retailing

Somerfield, the UK supermarket group, said that its ongoing store
refit programme had a major effect on sales in 2003, in particular
the makeover given to the Kwik Save discount store chain. But this
was not enough to save the Kwik Save name in Scotland, where stores
will be closed or converted to the more Somerfield banner.

In a trading statement issued ahead of its full-year results announcement next month, Somerfield said that like-for-like sales for the year to 24 April were 1 per cent higher than in 2003, thanks to a 1.2 per cent improvement at Kwik Save.

The performance was all the more remarkable, the company said, in that the discount chain had actually seen like-for-like sales decline by 1 per cent in the first half of the year. The second half saw sales rise by 2 per cent over the first six months (and 1 per cent over the second half of 2003), due entirely to the store refit programme and the success of new own label ranges at the division.

Kwik Save has been a heavy burden on Somerfield's results ever since it was acquired by the chain in 1998, and the company has struggled to find the right format for the chain in a UK market where demand is for a sophisticated and pleasant shopping experience as much as for low prices.

The 'stack it high, sell it cheap' format of the old-style Kwik Save stores did not fit well with this philosophy, and Somerfield has worked hard to develop a format which better meets consumer demand, adding fresh produce and introducing an own label range for the first time, for example. A number of stores under both the Somerfield and Kwik Save banners have also been sold as part of the group's strategy of focusing on mid-size, town centre outlets.

Despite the fact that Kwik Save's like-for-like sales growth was greater than that for the Somerfield banner over the year, the long-term development of the group is likely to focus on the traditional supermarket outlet rather than discount stores, especially with the strengthening of the group's petrol station forecourt operations (it now has 27 Somerfield stores under this format) and the recently announced move into the convenience sector in Scotland.

Indeed, the Kwik Save name will now disappear from the Scottish retail scene altogether following Somerfield's decision to focus on building its eponymous fascia there.

Of the 51 Kwik save stores currently operating in Scotland, 29 will be converted to the Somerfield format by the end of the year, with the choice of outlet dependant on such factors as location, catchment area and potential. The remaining 22 stores, and a warehouse in East Kilbride, will all be closed.

"The group remains committed to Kwik Save and to its investment in the Kwik Save store refit programme,"​ the company said yesterday. "The group is also committed to maintaining its presence in Scotland, as evidenced by the recent acquisition of the Aberness convenience business."

While the decision to abandon the Kwik Save banner in Scotland is undoubtedly harsh on the company's employees there, the combination of selling some stores and converting others to a different fascia has in fact been common practice at Kwik Save for several years as Somerfield struggled to cope with integrating the group just a few years after its merger with the Gateway chain.

But with the encouraging sales figures from both the revamped Kwik Save and Somerfield outlets, the group seems, finally, to be on track - as last year's aborted hostile takeover bid would suggest.

The UK supermarket sector is more competitive than ever before, and smaller players such as Somerfield will need to find - and indeed fortify - their own market niche in the coming years as the larger groups such as Tesco and Sainsbury begin a sustained assault on the high street.

Related topics: Market Trends

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