Safeway's dividend cut lays ground for price war

SAFEWAY, BRITAIN'S fourth largest supermarket group, announced a 40 per cent cut in its dividend yesterday as its new chief executive seeks to rebase the business to fight the price war against Tesco and Asda.

Reporting a 20 per cent fall in first half profits to pounds 150m, Carlos Criado- Perez, who replaced Colin Smith this month, pledged to grow sales and profits by next summer. He also unveiled a host of measures designed to get Safeway back on track.

"In many ways we are going back to basics," said the Argentinian, who joined Safeway from Wal-Mart. "There is no rocket science behind what we are going to do. We are going to drive sales forward by increasing customer numbers and delivering retail with passion."

Mr Criado-Perez said Safeway would end its popular Harry and Molly television advertisements as part of a plan to stop all national advertising and concentrate on local promotions instead.

It is cutting the price of its top 1,000 items in an attempt to end the perception that Safeway is more expensive than rivals. Its national pricing policy will be replaced by one which will see each store match prices offered by local rivals. This will include the Wal-Mart-backed Asda, Mr Criado-Perez said. Where Safeway has dominant positions, such as in Scotland, it will charge higher prices.

Improvements will also be made to stock availability and the presentation of merchandise. "Somewhere in the transition from outdoor local markets to supermarkets something got lost," he said. "We have to make the shopping environment stimulating and fun."

Store managers have been given more autonomy and new computers will enable each store manager to assess their own profit and loss account.

Analysts said the new chief executive's plans were plausible but that the jury was out on his chances of success. "He is rouging up the trading format a bit to drive sales. He is a fresh voice from outside and so must have a chance."

Another said: "It is hard to see much downside in the shares from here but you still have to say that Safeway's assets are likely to end up in the hands of someone else."

Safeway said it was outperforming the market with like-for-like sales in its second quarter up by 2.4 per cent on the previous year. Current trading was in line with that figure. Its market share rose by 0.2 percentage points to 9.5 per cent though the gross margin was nearly 1 per cent lower due to price cuts.

Group sales in the six months to 16 October were 2 per cent higher at pounds 4.3bn. The dividend was cut by 40 per cent to 2.64p per share. The final pay-out will be cut by a similar amount, the company said.

Safeway said it was interested in buying some of the larger Somerfield stores which have been put up for sale but declined to say how many.

The company also wants to improve Safeway's sales per square foot, which stand at around pounds 15 compared to over pounds 20 enjoyed by the leading players. "Our stores are really empty. I'm sorry to be blunt but it's true," Mr Criado-Perez said.

The shares rose 11p to 179.5p.

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