BBC Home
Explore the BBC
BBC News
Launch consoleBBC NEWS CHANNEL
Last Updated: Wednesday, 24 September, 2003, 11:42 GMT 12:42 UK
Q&A: The battle for Safeway
Supermarket giant Safeway, long accused of underperformance, has suddenly found itself intensely popular.

First smaller rival Morrisons announced a 2.9bn bid. Then Sainsbury outlined a 3.2bn offer, and now US giant Wal-Mart, owner of the UK's third biggest supermarket chain Asda, and Tesco, are interested.

As the government weighs whether to allow these bids, BBC News Online examines the clamour to win the hand of Safeway.

Why is Safeway attracting so much interest?

The opportunity to buy up a rival is a tempting one for any supermarket giant.

Planning permission for new supermarkets has become increasingly difficult to gain, with vacant city centre plots rare, and the tide turning against the spread of out-of-town shopping centres.

So retailers have often, for expansion, had to look at taking over existing retail space - and the opportunity to buy Safeway's 479 stores in one go represents a rare opportunity.

There is also the question of competition - namely the high level of it in the supermarket sector.

Losing out on Safeway would not only mean an opportunity lost for Sainsbury, Morrisons, Tesco or Asda.

It also would mean a huge competitive advantage gained for the rival which won the takeover battle.

So who stands to lose out most from failure to put in the winning bid?

Sainsbury is widely seen as the supermarket most vulnerable if it fails to secure Safeway.

Sainsbury had been ranked second in the UK supermarket league, after losing its top ranking to Tesco in the 1990s.

But Asda has just managed to overtake it, and with a Safeway deal under its belt would stay ahead of Sainsbury with ease.

Tesco in turn, could cement its position as the UK's largest supermarket chain, and would be able to reach parts of the country where it has not got a presence yet.

And a joint Morrisons/Safeway group would also be in a position to steal second place - opening the possibility of Sainsbury indeed being relegated to fourth place, and even becoming a takeover target itself.

What are the competition issues?

One of the key factors in the government's decision on whether to allow a takeover to proceed is the size of the combined group in the market.

A share of over 25% is usually seen as anti-competitiive.

Sainsbury has an 17% market share, analysts believe, with Safeway's share put at 11%.

So, on paper, a combined firm would have more than the 25% share which would set alarm bells ringing at competition authorities.

Sainsbury's believes it could get round objections by selling 90 stores.

Wal-Mart would face similar problems, with a take-over of Safeway bringing its market share to 26%.

But Asda has a strong presence in Scotland and the North, so the market share of a combined group in those areas would be considerably higher.

Tesco is already beyond the 25% market share, but its managers believe they can persuade the competition watchdog that taking over 75% of all Safeway stores will not distort the market.

Who has the financial muscle to win a bidding war?

Wal-Mart certainly has deep pockets, and if competition issues are resolved it will be in a strong position.

The US giant is the world's biggest retailer. It could probably afford to buy Safeway with a single day's takings.

It has said it is thinking of making an all-cash offer for Safeway, through its UK business Asda.

But competition concerns may prove an obstacle.

The company has said it is in talks with the Office of Fair Trading over the terms of a possible bid, but beyond that it is playing its cards close to its chest.

It is not listed on the UK stock exchange so is not bound by the same rules of disclosure as Morrisons and Sainsbury.

Asda chief executive Tony De Nunzio's only comment so far is that the company has "the financial muscle to ensure our offer is attractive to Safeway shareholders".

Who are Morrisons, and why do they want to buy Safeway?

Morrisons may have the upper hand in the takeover battle because of its small size, which raises less competition issues.

Morrisons operates in the north of England and has just over 100 stores.

They are a middle-market operation, without any of the frills you get with a Tesco or a Sainsbury's.

The company's financial success - due to a combination of frugality and market savvy - has taken it into the FTSE 100 index of leading shares, and given it the muscle to launch a bid for Safeway, a firm with almost four times as many stores.

Morrisons sees Safeway as a rapid and affordable way to leapfrog directly into the big league.

Should I be worried about all those supermarket shares I own?

Not if they are Safeway ones, which have jumped in value by about 50%, since the bid battle got underway.

But a takeover of Safeway could be read as a subtle indication of trouble in the sector.

The supermarket business is wildly competitive, and almost obsessively focused on price.

This means wafer-thin margins, the sort of environment in which only the very biggest firms can prosper.

And while things are ticking over fine at present, while British consumers shop like demons, any sign of a severe slowdown in expenditure could see the ongoing supermarket wars turn nasty.

The BBC is not responsible for the content of external internet sites


News Front Page | World | UK | England | Northern Ireland | Scotland | Wales | Politics
Business | Entertainment | Science/Nature | Technology | Health | Education
Have Your Say | Magazine | In Pictures | Week at a Glance | Country Profiles | In Depth | Programmes
Americas Africa Europe Middle East South Asia Asia Pacific