View from City Road: Shop that came in from the cold

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UNPUBLISHED figures from the market researchers AGB reveal a funny thing happening at the grocer's. Market penetration by the industry giants is actually falling slightly. Between the first quarter of 1991 and the second quarter of 1992, Tesco's penetration of UK households fell from 30.1 to 29.4 per cent; Sainsbury was down from 33 to 31.9; and Argyll-owned Safeway fell from 19 to 18.6. Fewer households are patronising the big three but those that do are spending much more.

Iceland Frozen Foods is following a different strategy, relying on widening its franchise rather than deepening it. Its penetration has risen from 15.7 to 18.4 per cent. It is attracting many more shoppers, although the average basket is small and not getting much bigger. With 542 stores already, it says there is scope for another 600. Iceland is a strange hybrid - part freezer centre, part convenience store - but the formula works, generating like-for-like sales increases that are the envy of the big three.

These slowed to 11 per cent (9 per cent by volume) in the 26 weeks to 27 June. Sales have been further hit in the first two months of the second half by bad weather, which has depressed demand for ice-cream, soft drinks and barbecue food. Iceland ended up one of the few shares to fall yesterday - from 501p to 485p. Total sales grew 16 per cent to pounds 480m. Pre-tax profits came in at pounds 24.2m, up 19 per cent, and the dividend was raised 17 per cent to 3.1p.

The shares have outperformed the stock market by 50 per cent over the past year but still stand at a fairly undemanding 13 times forecast earnings of 36.9p this year, assuming pre-tax profits of pounds 54m. Buy on any weakness.

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