Bottom Line: Safeway slowdown

ARGYLL GROUP, owner of Safeway, lobbed yet another cat into the food retailing pigeon loft yesterday. While debate rages over superstore saturation, Sir Alastair Grant, chairman of Argyll, told shareholders at the company's annual meeting that food price inflation was running below expectations.

This means that sales growth has slowed noticeably in recent weeks. At the end of May, Argyll reported that sales had grown by 14 per cent in the first six weeks of the current financial year. In the first 15 weeks, Sir Alastair reported, growth slipped to 13 per cent.

A slowdown in like-for-like growth from 2 to 1.5 per cent is a disappointing outome, but still not matched at either J Sainsbury or Tesco.

Current inflation at Safeway, excluding petrol, of 1.5 per cent is below expectations, pointing to a 'more challenging' year than thought only a few weeks ago. A fixed percentage margin generates less income when inflation is lower.

Feathers flew in the food retail sector as Argyll led yet another slip in share prices. On current analysts' forecasts prospective price-earnings ratios at Argyll and Tesco, which has underperformed the stock market by a third in the past 12 months, have fallen to levels - single figures at least - that suggest that profit warnings are not too far away, rather than necessarily offering a cheap buying opportunity.

A fast-recovering Asda, the market leader J Sainsbury and Kwik Save, the archetypal value-for-money operation, have earned the top ratings in the sector. This is likely to persist until the doubts over Tesco and Argyll are resolved.