Great play has been made of the company's impressive turnaround since Mr Simons arrived. Operating profits have climbed from pounds 72m to over pounds 100m, helped by the timely launch of Somerfield's Price Check campaign. The campaign helped change Somerfield's reputation for poor value and probably secured its survival - albeit as the number five player - in a cutthroat market. What is all too easily forgotten, however, is that profits are still way below those achieved in the years prior to Mr Simons' arrival. Despite this, Mr Simons stands to get up to pounds 5.66m under a previous bonus scheme if the company is successfully floated. There is also the usual package of share options and long-term incentive schemes to keep management locked in and happy in their jobs.
Progress from here on in looks like being a struggle. Mr Simons insists like-for-like sales are growing, but feels unable to say by how much. Latest research suggests Somerfield is losing market share. More generally, it lacks the buying power and marketing clout of its larger peers. Sticking to town-centre locations may prove wise in the long run, but renewed focus by the majors on smaller stores is both a threat to Somerfield's existing store base and provides fierce competition for anything new in the way of attractive sites.
But perhaps of most concern is Somerfield's image. If a superstore with a strong brand name such as Sainsbury's can have such a difficult time of it, Somerfield, with a very young brand name, is going to have it doubly so. It will have to run just to stand still. This is one investors can safely ignore.Reuse content