Safeway's sales in the six weeks over the Christmas and New Year period were up by 2.9 per cent on an underlying basis, stripping out petrol sales. Though this is behind the 4.1 per cent sales rise reported by Tesco last month, it is well ahead of the 1.2 per cent gain announced by Sainsbury's in its disastrous trading statement last Friday.
Safeway's margins have been slightly affected by an increase in promotional activity on its best-selling lines as well as a mini price war on specific products such as eggs, milk and now bread.
The company's shares edged 2p lower to 276.5p on the news after an initial rise suggested relief that the figures contained no unwelcome surprises. Colin Smith, chief executive, who has issued several warnings on profits in the past year or so, said the figures reflected the company's attempts to improve product availability and value after last year's problems. He also claimed Safeway has outperformed the industry sales average for the past nine months, though analysts said this had only been achieved by investing heavily in the gross margin.
"These figures are nothing to get carried away about," said one analyst. "In the first six months of the year they were giving a lot away on margins and in the last three months they have been up against very easy comparisons."
A glance at Safeway's share price tells the story. The shares are well off their peak in the summer and over the past year have under-performed the All Share by 28 per cent. Market share has been more or less maintained at around 9.5 per cent but Safeway has not made up ground even on third placed Asda, let alone on the market leaders.
Management will brief analysts later this month on Safeway's brand positioning. The company has made much in the past of its focus on targeting higher- spending younger families. But this is hardly unique and Safeway's claim to be more family-friendly is only backed up by services such as creches in a small proportion of stores.
The board is soon to be strengthened with the appointment of a new retail director. This may help improve focus but the fact is that Tesco's increasing grip on this sector means rivals are having to compete ferociously just to stand still.
On full-year profit forecasts of pounds 350m, the shares trade on a forward multiple of 12. This is cheap for a supposedly defensive play but as one analyst puts it, given the increasing competition, "the shares are only likely to tread water".