Monday, September 13, 1999 Published at 16:49 GMT 17:49 UK
Business: The Company File
Kwik loss for Somerfield
Somerfield is facing tougher competition in the UK groceries market
Supermarket group Somerfield has seen sales squeezed by the intense competition in the grocery market in the UK.
The company says that with little new business available in the grocery sector, its larger rivals are cutting prices to boost their share.
The squeeze could not have come at a worse time, as Somerfield is still trying to absorb KwikSave, with which it merged two years ago.
Sales at KwikSave, the budget grocery chain, were down particularly sharply since it was taken over by Somerfield.
Chief executive, David Simons, said they had been a victim of circumstances as he announced trading profit during the 16 weeks to 14 August down by £20m on the same period last year.
Total sales fell 5.8% to £1.75bn from £1.86bn.
With increasingly tough competition on pricing and marketing, KwikSave is losing customers to Tesco and Asda.
KwikSave branding poser
The company has been rumoured to have recently been rejected by Safeway as a merger partner.
By the close of trading on Monday Somerfield shares had fallen by 26.5p to 179.5p.
Somerfield said it was taking action to curb the fall in profit but some analysts believe it would not prove to be enough. As part of this move, the parent company is converting 461 of its KwikSave stores into the more successful Somerfield brand.
Like-for-like sales at the KwikSave stores and 28 other non-core shops scheduled for refurbishment fell 10.8%.
However, Somerfield is still stuck with a further 349 KwikSave branches which will keep their former brand name.
Petrol stations brighter
Some analysts believe it would be better for Somerfield to close these 349 stores. Like-for-like sales among these shops fell 12.8% with total sales plunging to £370.1m from £424.9m.
"It's not quite clear when or how things are going to improve," said Ian Macdougall, analyst at Williams De Broe.
Analysts fear that Somerfield will suffer further from tougher competition from Asda, backed by the world's biggest retailer, Wal-Mart Stores, pledging to keep cutting prices.
Among the brighter spots was like-for-like sales at stores which have a sales area of less than 3,000 square feet and include petrol stations. These rose 5.5%.
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