Morrisons Compact to bring an end to Safeway's shelf life

Sir Ken Morrison, the septuagenarian chairman of Wm Morrison, is considering banishing the Safeway brand from Britain after completing the £3bn takeover of his supermarket rival tomorrow.

Morrisons had originally planned to keep the Safeway name on stores of under 15,000 square feet. But as it completes the takeover, it is now having a rethink, and is considering the launch of a Morrisons Compact format to take on the Tesco Metro and Sainsbury's Local chains.

Sir Ken had been concerned that putting the Morrisons name on the smaller stores might harm the brand name of the whole group. The outlets are too small to carry the full Morrisons range, and because they cost much more to keep stocked, prices in these stores tend to be higher than in the large outlets.

Other retailers have found this to be a problem, especially J Sainsbury whose Sainsbury's Local stores have been a relative success but whose larger outlets have suffered because customers think they will be just as expensive.

However, Morrisons, which currently has no stores in the sub-15,000 sq ft category, is concerned that it may have difficulty with the merchandising of goods in a chain with a different name, and that it may run into problems when it is stocking own-brand products.

The company has received a number of offers for the smaller outlets and might consider selling them once it has completed the disposal of the 52 stores it has been forced to sell by the Competition Commission.

The completion of the Safeway deal has been met by Morrisons' rivals with a price war. Asda has said it will slash its prices by £40m to compete with the new, larger rival, while Tesco is expected to follow suit shortly.

Morrisons has said it will be able to reduce prices in former Safeway stores by 6 per cent after the merger.