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Last Updated: Thursday, 21 October, 2004, 15:45 GMT 16:45 UK
Store rebranding boosts Morrisons
Morrisons store
Morrisons is Britain's fourth largest supermarket chain
Shares in supermarket group Morrisons have jumped 15% after investors cheered sales figures for former Safeway stores now rebranded under its own name.

Morrisons, which took over Safeway in March, said recent trading had shown sales at the revamped stores were up 13% on a year ago.

Morrisons plans to increase the pace of converting the remaining Safeway stores, where sales are falling.

Problems at Safeway cut Morrisons half-year profits by 7.6% to 121.6m.

Clash of cultures

While the company's original Morrisons stores saw both sales and profits rise, the Safeway outlets overall made a 39m loss with sales down 7.9%.

A great amount has been achieved in the last few months
Sir Ken Morrison, Morrisons chairman

However, sales at Safeway stores that had been rebranded under the Morrisons badge saw year-on-year sales up 13% during the first 10 weeks of the second half of the year.

Releasing its half-year figures Morrisons admitted that the task of integrating Safeway had been "difficult", and added that the cultures of the two companies "had little in common".

"There were many operational differences in the way the two companies were organised," it said.

"Morrisons is a sales-driven business with careful control of expenditure and with a strong, clearly defined, management structure."

Morrisons went on to attack the previous directors at Safeway for introducing "a completely new accounting system" just four weeks prior to the takeover.

"Insufficient training had been undertaken and the system had not been thoroughly proven prior to its introduction," Morrisons said. "The problems took time to solve but the situation is now under control."

'Good deal'

It added that in order to arrest the falling sales at Safeway it took the decision to reduce prices.

Wm Morrison facts
1899 - William Morrison founds egg and butter merchant firm
1958 - Opens first store
1967 - Becomes public company
2004 - Takes over Safeway for 3bn
Sells 52 stores as part of deal
Current total of 554 stores

Yet while customer numbers were stabilised at the Safeway stores, this was not sufficient to restore sales to previous levels, it said.

Despite admitting the difficulties, Morrisons chairman Sir Ken Morrison said the integration process had now been completed and he remained confident.

"A great amount has been achieved in the last few months which have illustrated what a good business Morrisons is and has convinced me of what a good deal the purchase of the Safeway business will prove to be," he said.

The Safeway brand name should now completely disappear by the end of 2005.

Sir Ken refused to comment on reports that the group is to sell up to 120 smaller stores to rival Somerfield, but said he had made no secret of "testing the market".

"We are basically sounding the market at this stage, that's all that's happened," he said.

Different groups

Retail analyst Robert Clark said one problem facing Morrisons was that traditional Safeway customers were not impressed with Morrisons more "brutal and simplistic" products.

"Simply cutting prices is not enough if the customers cannot be tempted by what is on offer," he said.

"Safeway has always been slightly upmarket and has different customers than Morrisons.

"While Morrisons has always very successfully targeted its ranges to its core customers in the north of England and Midlands, the Safeway customers appear far from tempted at what is on offer.

"This is the big challenge for Morrisons - how to please two different sets of shoppers."

Morrisons shares slump on warning
02 Jul 04  |  Business
Morrisons kicks off stores revamp
23 Apr 04  |  West Yorkshire
Morrisons delivers profits rise
18 Mar 04  |  Business
Morrisons seals Safeway takeover
08 Mar 04  |  Business
Shareholders back bid for Safeway
11 Feb 04  |  Business

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