Outlook: Rumours grind down Safeway

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The Independent Online
POOR OLD Safeway's. It was perhaps inevitable that as hard as management might try to focus attention on the group's trading figures, everyone was far more interested in the "will-they, won't they" saga of the company's on-off merger with Asda. Safeway is adamant that the whole thing is a no-no. No talks, no advisers meeting in country hotels or chief executives slipping silently into tete-a-tetes at City solicitor offices. Nothing. The nearest thing to a meeting was in February, Safeway says, when its chairman David Webster attended the same shooting party as Asda's Archie Norman. Now please, please, just concentrate on our rather pleasing current trading statement won't you?

Their frustration demands sympathy. Unfortunately, the rumour mill is grinding away to such vigour that it is hard to ignore it. Whether or not the speculation is true, there are enough people in the City willing it to happen that you never know, it might just do so. The more they stir the pot, the more chance they have of bringing the union to fruition.

All this is destabilising for Safeway, which has enough on its plate at the moment. It is a distant fourth in the supermarket battle and its sales per square foot are still significantly adrift. There's now a renewed push on sales, but the cost in terms of investment in its loyalty card, advertising and more staff is a heavy one. Any sales growth that materialises will be low profit.

The other problem is that we have been here before. A few years ago Safeway claimed it had made a quantum leap with its Safeway 2000 initiative only to find the wheels coming off a little while later. Safeway's present trading performance may be relatively better than Sainsbury's but the City will want to see more than six weeks worth of good numbers before its believes that this business has turned the corner.

Fighting back was hard enough for Sainsbury's, which had the benefit of a strong brand and a strong number two market position. For Safeway, coming back from fourth with a weaker brand and store portfolio will be much, much tougher. And all the while Asda will be watching and waiting.