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Changes in store as Somerfield decides to sell supermarkets

SOMERFIELD EFFECTIVELY gave up in the battle against the major supermarket groups yesterday when it unveiled plans to sell its largest superstores and concentrate on its smaller high street outlets.

Somerfield, which acquired the Kwik Save stores last year, has been forced into the decision after a collapse in sales which led to a third profits warning in four months on Wednesday. The group is planning to sell up to 140 of its larger superstores to the leading supermarket operators as well as clothing retailers like Peacocks. It is also hoping to sell its 350 remaining Kwik Save outlets as a going concern. However, there is the possibility of a slimming down of the group's head office and distribution centre in Bristol with up to 1,000 job cuts.

The news forced the shares down another 10 per cent to a new all-time low of 84p.

Analysts questioned the strategy and said it was highly likely that Somerfield would have to close the Kwik Save stores and incur heavy property and redundancy costs. Philip Dorgan, retail analyst at WestLB Panmure, said the decision to almost halve the portfolio could have serious knock- on effects to the remaining part of the business. "Suppliers will seek better terms [ie higher prices] and they could start demanding swifter payments. The business could implode," he said.

Analysts also questioned Somerfield's belief that it will be less exposed to the major supermarkets if it concentrates on its smaller stores. One said: "The idea that there is some cosy, cotton-wool world of convenience stores is a fantasy. They are deluding themselves." Some analysts also questioned the role of Warburg Dillon Read which earned huge fees for advising Somerfield in the Kwik Save merger and will now earn a further sum for advising on the disposals.

The sales will leave Somerfield with 852 stores including 416 Kwik Save outlets which have yet to be converted to the Somerfield format.

A trading update showed that Somerfield' s group like for like sales in the 28 weeks to 6 November were down by 6.3 per cent. This included a 16.2 per cent drop in Kwik Save sales in the second quarter, compared with a 12 per cent decline in the previous three months.

Andrew Thomas is stepping down as Somerfield's chairman to be replaced by Louise Patten, wife of former Tory cabinet minister John Patten.

David Simons, chief executive, said he was happy to soldier on. "We're not giving up."