Pear shaped

15 May 2003

Suppliers aren’t giving the UK group as many rebates as they used to because they don’t think Safeway will be independent for long. Safeway is trying to contain the impact by hacking back refurbishments. But, in this rat race, standing still is akin to running backwards.

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Safeway said that in the full year 2002/2003 its profit before tax and exceptional items was £335m, in line with the fourth quarter statement estimate published in April. The fourthlargest UK supermarket group said that its second half results were hit by the bid process. The group agreed a merger with smaller rival Wm Morrison in January and subsequently received approaches from the other three national chains, Tesco, Sainsbury and WalMart's Asda, and from retail entrepreneur Philip Green.

All the potential buyers save Green are currently being investigated by the Competition Commission, which is supposed to come to its conclusions in August. Safeway now expects this to slip to September.

Secondhalf sales were up 0.5% in spite of a 0.3% decline in the fourthquarter. The group's gross margin was hit in the fourth quarter by 90 basis points. This was largely due to supplier rebates being less generous than expected. Some of the gross margin losses were offset by lower costs relating to refurbishments and reformatting stores, and efficiency gains.

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