Morrison cuts Safeway prices and hints at sale of smaller stores

WM Morrison yesterday kicked off its ownership of Safeway with a raft of price cuts and a hint that it might sell the smaller stores it acquired in the £3bn supermarket takeover.

Marking the formal completion of Morrison's takeover of Safeway, the combined company spelt out its integration plans. From August, three Safeway stores a week will be converted to the Morrisons format. The 178 medium-sized Safeway outlets, those between 15,000 sq ft and 25,000 sq ft, will be branded Morrisons Choice and will not carry the full range of produce. The 238 larger stores will get the full Morrisons treatment.

However, Sir Ken Morrison, the executive chairman, raised doubts over the future of the 138 Safeway stores that have less than 15,000 sq ft of space. These shops will retain the Safeway brand, although "Compact" will be added to the name - prices will differ from the larger stores on some items.

Sir Ken said the company was "intrigued" by the level of interest from rivals in the smaller Safeway shops. Morrison has traditionally traded from larger outlets.

He said Morrison would "need to get to know" the trading patterns and performance of these smaller shops. Bob Stott, the managing director, added: "Watch this space."

Morrison announced that it would cut prices on 300 items in larger Safeway stores. The discounts will come on more frequently bought products, including milk, butter, washing powder and pet food.

The company declined to say how much the move would cost - unlike Asda, which last week announced £40m of such discounts. The Morrisons price cuts will form the first wave of a programme to bring the prices in Safeway stores down to the level of a Morrisons shop. Overall, this will eventually cost the company £500m.

Morrison had previously announced plans to axe 1,200 jobs at Safeway although yesterday it said this process had not begun and no timetable for the redundancies was offered. Shares in the merged company closed at 249p.