Store wars cut Safeway profits by 20%

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Supermarkets group Safeway today announced a 20% fall in first half profits, blaming pressures from the retail price war.

Supermarkets group Safeway today announced a 20% fall in first half profits, blaming pressures from the retail price war.

Pre-tax profits fell to £150 million in the 28 weeks to October 16, down from £187.4 million at the same time last year.

But the group said its sales had begun to improve from a slow start at the beginning of its financial year, with turnover, excluding VAT, jumping 2% to £4.05 billion from £3.97 billion.

Safeway's newly appointed chief executive, Carlos Criado-Perez, said the group's profits had come under pressure as it had invested more in reducing food prices and hiring more staff.

He outlined plans to revamp the business by creating a new commercial strategy which will see the company focus on food sales and redesign its stores in an attempt to drive sales growth.

"Safeway has under-achieved," Mr Criado-Perez said.

"To win we must build strong, sustainable and profitable sales growth. We will do this by unlocking the potential in our stores, our infrastructure and our people."

Mr Criado-Perez said Safeway had been outperforming its rivals in the past 12 consecutive weeks with strong like-for-like sales growth, which excludes purchases made in new stores.

The rise came after trading strengthened during the second quarter of its financial year with like-for-like sales rising by 2.4%, compared with a 0.3% slump in the first quarter.

The recent improvements pushed Safeway's entire like-for-like sales figures for the first half up by 1%.

The group also saw its share of the national market rise to 9.5%, up by 0.2 percentage points on the same time last year, according to figures supplied to Safeway by Taylor Nelson Sofres.

Mr Criado-Perez, who was appointed chief executive on November 3, said Safeway was now focusing on introducing its new strategy, which would see it become the "best for fresh", "first for availability", and feature new-look stores.

He hoped the new strategy would boost customer numbers by offering a better range of fresh food at greater value prices.

But the price of the changes would mean a 40% cut in the interim dividend for investors this year. Shareholders will receive 2.64p a share compared with 4.4p last year.

Safeway has been coming under increasing pressure from the cut-throat price battle being waged by its larger rivals Tesco, J Sainsbury and Asda.

Its results come hot on the heels of gloomy half-year earnings figures released by Sainsbury's on Tuesday which showed it was also being hit hard by the price war with profits sliding 29.5%.

Mr Criado-Perez joined the group on August 15 as chief operating officer. He snared the top job at the group on November 3 after chief executive Colin Smith ended his troubled six-year reign and left with a £1.1 million package.