Profits slump at Safeway

Safeway plans to end loyalty cards

Profits have slumped at UK supermarket group Safeway.

In the year to 1 April, profits dropped 30% to £236m from the previous year.

The falling profits reflect the intense competitive pressures in the UK retailing sector, with other retailing giants, such as Sainsbury's, also under pressure.

But chief executive Carlos Criado-Perez , who joined in November, said the group is beginning to make a "solid and sustainable turnaround".

Price cuts, more staff in stores and head office redundancies led to the drop in profits.

But the strategy of cheaper prices has led though to greater volume of sales.

They rose by 5% over the year to £8.32bn and by 10% in the last six months.

The company now hopes to keep these new customers, an estimated 750,000 a week, by further price cuts.

End to loyalty cards

In a trading statement on 4 May, Safeway announced the end of loyalty card points.

While some fear that the end of loyalty cards may lose it customers, Safeway promises to use the £50m it saves to keep prices low.

Investment in weekly promotional deals is to rise by £80m to £110m this year, delivering £500m of price cuts to consumers.

It has decided to cut back on the number of new stores it opens and concentrate its money on the existing stores.

Upbeat about future

Chairman David Webster said:"Safeway has regained its confidence. It is now positioned to grow profits and value for shareholders."

This view finds support from analysts, who say the new chief executive, a former Wal Mart man, will turn the company around.

One analyst sounded a note of caution.

"It remains to be seen how long this renewed momentum can be sustained in the face of continuing, fierce competition, but the first half should be relatively plain sailing...and we expect profits to recover in 2000/01 after what has been a very difficult year," Ian MacDougall, analyst at Williams de Broe said.