Kwik Save losing the bean war The Investment Column

These are worrying times for Kwik Save, and management's decision to bring in Andersen Consulting to conduct a root-and-branch strategic review only adds to the concerns. Graeme Bowler and his team have tried just about everything in the last few years and nothing has worked. Turning outside for help seems to indicate that they have run out of ideas.

Kwik Save's central problem is an old one now. Its once-secure niche as "Britain's number one discounter" is looking increasingly vulnerable. The superstores are encroaching on Kwik Save's territory by offering equally cheap ranges on commodity products. When Kwik Save cut the price of baked beans to 3p, Tesco matched it. And while the superstores park their tanks on Graeme Bowler's lawn, the threat from Continental discounters grows.

Kwik Save says that the only thing that is not up for grabs in the review is its position as a discounter. The question is how to deliver it. A loyalty card looks unlikely as the company does not have the systems. An extension of the range would increase already-mushrooming costs. It looks an unenviable position, which is why analysts were cutting forecasts yesterday and predicting further falls in the share price, even after yesterday's 9 per cent slump from 468p to 428p.

Yesterday's disappointing results showed the same old problems, with a few new ones thrown in. Pre-tax profits were down 28 per cent to pounds 44.2m. Though sales were up 8 per cent (or 1 per cent like-for-like) costs rocketed by 19 per cent.

Part of that rise was due to the company investing in a new distribution centre, re-writing its computer systems and staff training. And though buying terms have improved, pricing pressure on basic items such as beans, tomatoes and corned beef has hit the gross margin. The margin in the first half fell by 0.2 per cent compared with last year. There was also a warning that the margin would fall further in the second half due to continuing tough trading conditions.

Though like-for-like sales are up by 1 per cent since the year end, customer numbers continue to fall after the 3 per cent fall in the first half. The problems have forced the company to rein back its ambitious store opening programme. It will now open only 35 new stores this year, half the planned figure, reducing capital expenditure from pounds 145m to pounds 120m.

The Shoprite stores in Scotland and the North-east that were acquired last year are improving but still made a half-year loss of pounds 3m. Kwik Save shares have fallen from more than 700p last summer to yesterday's 428p. But even with analysts cutting full-year forecasts to pounds 87m, giving a price/earnings multiple of 12, they still enjoy a premium to Tesco and Argyll which is hard to justify. The shares look set to fall further. Sell.

Start your day with The Independent, sign up for daily news emails
ebooks
ebooksA special investigation by Andy McSmith
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + OTE £45,000: SThree: SThree Group have been well e...

Ashdown Group: IT Manager / Development Manager - NW London - £58k + 15% bonus

£50000 - £667000 per annum + excellent benefits : Ashdown Group: IT Manager / ...

Recruitment Genius: Sales Consultant / Telemarketer - OTE £20,000

£13000 - £20000 per annum: Recruitment Genius: Scotland's leading life insuran...

Ashdown Group: Training Programme Manager - City, London

£40000 - £45000 per annum + benefits : Ashdown Group: Training Programme Manag...

Day In a Page

NHS struggling to monitor the safety and efficacy of its services outsourced to private providers

Who's monitoring the outsourced NHS services?

A report finds that private firms are not being properly assessed for their quality of care
Zac Goldsmith: 'I'll trigger a by-election over Heathrow'

Zac Goldsmith: 'I'll trigger a by-election over Heathrow'

The Tory MP said he did not want to stand again unless his party's manifesto ruled out a third runway. But he's doing so. Watch this space
How do Greek voters feel about Syriza's backtracking on its anti-austerity pledge?

How do Greeks feel about Syriza?

Five voters from different backgrounds tell us what they expect from Syriza's charismatic leader Alexis Tsipras
From Iraq to Libya and Syria: The wars that come back to haunt us

The wars that come back to haunt us

David Cameron should not escape blame for his role in conflicts that are still raging, argues Patrick Cockburn
Sam Baker and Lauren Laverne: Too busy to surf? Head to The Pool

Too busy to surf? Head to The Pool

A new website is trying to declutter the internet to help busy women. Holly Williams meets the founders
Heston Blumenthal to cook up a spice odyssey for British astronaut manning the International Space Station

UK's Major Tum to blast off on a spice odyssey

Nothing but the best for British astronaut as chef Heston Blumenthal cooks up his rations
John Harrison's 'longitude' clock sets new record - 300 years on

‘Longitude’ clock sets new record - 300 years on

Greenwich horologists celebrate as it keeps to within a second of real time over a 100-day test
Fears in the US of being outgunned in the vital propaganda wars by Russia, China - and even Isis - have prompted a rethink on overseas broadcasters

Let the propaganda wars begin - again

'Accurate, objective, comprehensive': that was Voice of America's creed, but now its masters want it to promote US policy, reports Rupert Cornwell
Why Japan's incredible long-distance runners will never win the London Marathon

Japan's incredible long-distance runners

Every year, Japanese long-distance runners post some of the world's fastest times – yet, come next weekend, not a single elite competitor from the country will be at the London Marathon
Why does Tom Drury remain the greatest writer you've never heard of?

Tom Drury: The quiet American

His debut was considered one of the finest novels of the past 50 years, and he is every bit the equal of his contemporaries, Jonathan Franzen, Dave Eggers and David Foster Wallace
You should judge a person by how they peel a potato

You should judge a person by how they peel a potato

Dave Hax's domestic tips are reminiscent of George Orwell's tea routine. The world might need revolution, but we like to sweat the small stuff, says DJ Taylor
Beige is back: The drab car colours of the 1970s are proving popular again

Beige to the future

Flares and flounce are back on catwalks but a revival in ’70s car paintjobs was a stack-heeled step too far – until now
Bill Granger recipes: Our chef's dishes highlight the delicate essence of fresh cheeses

Bill Granger cooks with fresh cheeses

More delicate on the palate, milder, fresh cheeses can also be kinder to the waistline
Aston Villa vs Liverpool: 'This FA Cup run has been wonderful,' says veteran Shay Given

Shay Given: 'This FA Cup run has been wonderful'

The Villa keeper has been overlooked for a long time and has unhappy memories of the national stadium – but he is savouring his chance to play at Wembley
Timeless drama of Championship race in league of its own - Michael Calvin

Michael Calvin's Last Word

Timeless drama of Championship race in league of its own