Safeway facing further £6m bill to keep top staff loyal

Safeway will have to fork out a further £6m in loyalty bonuses this year to prevent key staff quitting as the takeover battle for the supermarket group drags on into the summer and beyond.

The company has already had to pay £6m in retention bonuses to 400 top employees since the five-way bid battle began in January and it confirmed yesterday that it was facing similar costs in the current financial year.

The loyalty bonuses and £17m in banking and advisory fees associated with the bids from Tesco, J Sainsbury, William Morrison, Wal-Mart/Asda and Philip Green, reduced pre-tax, pre-exceptional profits to £335m for the year ended 29 March. This was exactly in line with guidance Safeway gave investors in April.

In contrast to its rivals, Tesco and J Sainsbury, like-for-like sales also fell by 0.1 per cent in the fourth quarter, reducing Safeway's market share by half a percentage point to 8.6 per cent.

Gross margins meanwhile were hit, declining by 0.9 per cent in the second half and 0.2 per cent for the year as suppliers reduced their advance rebates because of concern over the future ownership of the group.

There was a glimmer of good news in the shape of a 0.8 per cent rise in like-for-like sales in the first six weeks of the current financial year. However, Safeway warned that this rate of growth would not be sustained for the remainder of the first quarter because it was up against a tough comparative period last year when supermarket sales were boosted by the World Cup and the Queen's Jubilee.

Carlos Criado-Perez, Safeway's chief executive, said the bid battle has created "challenging circumstances" for the company but said it had succeeded in keeping sales stable and would look to continue that performance for the year.

The four trade bidders have all been referred to the Competition Commission, which is due to report back by 12 August but Mr Green, who owns no supermarkets, is free to bid.

Mr Green yesterday again asked for more information from Safeway but company sources said it would only open the books if it was confident the BhS owner was a serious bidder prepared to pay a proper price.