Safeway set to launch discount chain to compete with smaller supermarkets

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Safeway is considering launching a chain of discount stores in some of Britain's less prosperous areas as a way of building market share.

Britain's fourth-largest supermarket group will convert some of its existing outlets to the new concept though Carlos Criado-Perez, Safeway's chief executive, said most would be new openings. The group feels there is scope for 100 to 200 of the stores which it feels will enable it to tackle under-served areas of the country where the competition is mostly local independent operators or the Co-op.

The stores will carry a separate name which has not yet been disclosed. Safeway will be used as a subsidiary brand on the fascia. They will offer a convenience store range but with a larger offer of fresh foods. In design terms they will be more functional and offer lower service levels.

"It is an untapped opportunity for the big retailers and we would like to take it," Mr Criado-Perez said. The first branches could open as soon as next spring.

The comments demonstrate Safeway's willingness to worry new ideas as its recovery gathers pace. The group's first hypermarket store, called Safeway Megastore will open near Plymouth in two weeks time. It will include a central area called The Hub which will feature a café surrounded by non-food sections such as books, magazines, videos and DVDs. Mr Criado-Perez said that if successful this too could be rolled out as a stand-alone concept.

Safeway yesterday underlined the strength of its recovery which has been driven by an aggressive promotional strategy consisting of a constantly changing series of special offers. Half-year profits were up 8.3 per cent to £180m, before exceptionals.

Like-for-like sales in the 28 weeks to 13 October were 5.7 per cent ahead of the same period last year. Safeway has now recorded eight consecutive quarters of underlying sales growth of more than 5 per cent. David Webster, the chairman, indicated that trading had remained strong during the past month.

Customer numbers rose by 500,000 though market share remained static. A three-year programme to refurbish all the group's 484 stores is under way. More than 70 stores have been refurbished so far with a further 40 under way. Safeway said new-look stores in places like Wimbledon and Woking were performing ahead of expectations.

But Safeway shares fell 16.5p to 328.5p on analyst fears of a tougher trading environment in the new year as price competition intensifies.