Cut-price fuel and pizza parlours help Safeway to boost sales

Safeway, Britain's fourth-largest supermarket group, delivered better-than-expected sales growth yesterday, countering City fears that the group's recovery programme had run out of steam.

Like-for-like sales in the three months to 22 June were up by 3 per cent on the same period last year. This compared with growth of just 2 per cent reported by the company in May.

Safeway said it was confident that its new formats, which introduce pizza making and fast food counters in the front of stores, would drive further growth. It expects to remodel 100 stores this year, compared with 71 last year. The sales growth was further helped by a high-profile price campaign on petrol.

David Webster, its chairman, said: "In a food retail market where growth has been slowing and the intensity of competition increasing, our stronger sales performance reflects the fact that the growth from reformatted stores is now greater than the sales temporarily lost from those undergoing transformation."

"It's a faster pickup than I expected," said David Stoddart, at Teather & Greenwood. "It would seem to support management's contention that they can return to their 4 per cent to 6 per cent target range."

Other analysts said Safeway shares now looked cheap after falling from more than 400p just over a year ago to 261p yesterday, down 2p on the day. One said: "Given the store refits and the petrol cuts, 3 per cent is the least you would expect. But the shares have probably gone too far down now."

Safeway shares now trade on a forward multiple of just 10 compared with 13 for J Sainsbury and 16 for Tesco. Safeway is the first of the big supermarket group to report for the current period but Tesco's like-for-like sales growth is thought to be running at about 4 per cent.

Last month Safeway tried to entice customers with the cheapest petrol in the country if they spent £150 pounds or more on groceries. The company said the offer had been "reasonably successful" in tempting customers to spend more. However, the poor weather had dented fresh food sales which attract higher margins.