Budgens gives up as discounter

Fierce price competition among the food discounters caused Budgens, the supermarket group, to abandon its 18-month foray into the discount market yesterday. It is selling five of its Penny Market stores to Lidl, a German discount group, for £2.5m and converting the other seven to branches of Budgens.

The company said the stores made a loss of £1.4m on sales of £9.9m over the last six months and were likely to continue to perform poorly for the foreseeable future. Budgens has set aside £1m in restructuring costs.

Budgens launched the Penny Market concept with great fanfare in the summer of 1993 backed by Rewe, a German discount group which had bought a 29 per cent stake in Budgens. The aim was to build a chain of around 40 stores in two years.

Budgens cited competition on price and for new sites as the two main problems. The cost of new stores had doubled in 18 months while the top 100 products were selling at prices 10 per cent lower than a year ago.

John von Spreckelsen, Budgens chief executive, said: "I can't say it was a happy episode but we've been decisive and got out of something that could have made considerable losses."

He said there would be no management changes as a result of the Penny Market failure and that Rewe had indicated that it would not be selling its stake. The shares fell 0.5p to 24p.

The poor trading at Penny Market caused pre-tax profits at Budgens to slide from £3m to £881,000 for the six months to 13 November. Sales slipped slightly to £150m.

Discount battle, page 34