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 Working Lunch Thursday, 9 January, 2003, 12:13 GMT
Safeway stores snapped up
A big shake-up in the supermarket sector is on the cards.

Safeway, the UK's fourth biggest chain, is to be taken over by Morrisons, which is number five.

While there has been speculation that Safeway was ripe for a bid, Morrisons was thought an unlikely predator.

It is much smaller, with only 119 stores - just a quarter the number run by Safeway.

Geographical sense

But with most of Morrisons' outlets in the north of England and Safeway strong in Scotland and the south, a takeover makes geographical sense.

The combined group will have 600 stores and a turnover of nearly 13bn.

At the checkout
Californian company which opened first UK store in 1962
Bought by Argyll in 1987 and converted Presto stores to Safeway
480 stores
Turnover of 9bn
8m customers a week

It will also have a market share of 16%, enabling it to compete more effectively with the leaders - Tesco, Sainsbury and Asda.

"It's challenging news for Morrisons and the sort of deal that Safeway has been looking for
Founded in 1899
Became public company in 1967
119 stores
Turnover of 3.9bn
3.25m customers a week
for some time," says retail analyst Richard Perks of Mintel.

But while Safeway investors welcomed the news - its shares jumped by 27% - the City was less sure about the effect on Morrisons.

Turned round

Its shares fell back 8% when trading began amid concerns it could be biting off more than it can chew.

Safeway has worked hard in recent years to turn its business round and add 1.5 million customers.

Morrisons is a very, very good business, historically one of the innovators in food retailing and has got a tremendous record

Richard Perks,
Retail analyst, Mintel
But it has never really been able to compete with the bigger players in the sector, and has been seen as a takeover target.

There was even talk of a consortium being formed to break up the group and share the spoils.

The takeover makes Morrisons a major player in the market.

Richard Perks says it has a good product range and keen prices to pass on to Safeway, but there could also be hurdles ahead.


"The market positioning of the two is so different," he explains.

"Safeway is a relatively upmarket business, more or less in the shadow of Sainsbury's. Morrisons is a lower end business, very much the same sort of level as Asda.

"So if you convert those Safeway stores to Morrisons you immediately have problems because you might lose some of those customers before you pick up new ones.

"It could be traumatic in the short term but the long term gains could be substantial."

Eventually the merger could create 4,000 jobs, but in the immediate future, up to1,200 administrative workers are likely to go as the businesses try to cut overheads.

  Rob Pittam reports
"Morrisons is regarded as quite traditional in its methods"
  Retail analyst Richard Perks
"The short-term pain could be considerable"
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09 Jan 03 | Business
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