A year and a half after buying the discount chain Kwik Save to double in size, Somerfield said it will sell the business and keep about half of the smaller stores. It also plans to sell up to 140 larger Somerfield outlets in an effort to shore up sales after an 8.1 per cent drop in the second quarter.
Somerfield has struggled since it bought Kwik Save in February 1998 - many stores have proved unsuitable for conversion to the more expensive Somerfield brand. The difficulties were exacerbated when Wal-Mart, the world's largest retailer, bought Asda in June and began cutting prices.
"The idea of converting Kwik Save stores to Somerfields was simply unacceptable to the consumer," said Ian Macdougall, an analyst at Williams de Broe.
The shares fell 10.6 per cent to close at a new low of 84p. The stock has dropped 79 per cent so far this year and is the worst performing stock this year on the FT-SE 250 index. Its market value has fallen by pounds 1.85bn to about pounds 415m.
The change in strategy to focus on the pounds 30bn UK market for local convenience stores prompted Somerfield's chairman, Andrew Thomas, to quit so that the company could put a new person in charge of the reorganisation.
As part of the new strategy, Somerfield plans to sell 350 Kwik Save stores after failing to integrate them into its name-brand business. It also wants to sell between 100 and 140 Somerfield stores that are over 10,000sq ft. Somerfield will be left with around 850 stores, including 400 Kwik Save outlets earmarked for conversion. So far, 70 Kwik Save stores have been changed to the Somerfield format, and sales at 30 of these have risen 25 per cent on average. The rest have seen sales grow about 16 per cent.