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Headlines > Financial

Safeway stores up for sale already

27-Oct-2003

Safeway, the UK food retail chain, has put 53 stores up for sale in advance of the expected takeover of the chain by Wm Morrison.

The company was obliged by the competition authorities in the UK to sell the 53 outlets in order to win approval for the Morrisons takeover, but the decision to invite bids for the outlets before a formal bid from the Yorkshire-based chain is unusual.

Reports suggest that Safeway took this decision in order to have some control over how much it receives for the stores which must be sold off amid fears that Morrisons will dilute its original £2.9 billion offer for the chain in the light of worsening trading figures and increased costs related to the lengthy approval procedure.

Morrisons has agreed to allow Safeway to put the stores up for sale and will ultimately be responsible for deciding which bids to accept.

Among the likely bidders for the outlets are Tesco, Asda and Sainsbury, the top three UK food retailers, all of which were unsuccessful in their rival bids for Safeway. The competition authorities also ruled that they would only be able to bid for these 53 Safeway stores - any others which Morrisons might decide to sell once the takeover was complete would have to be sold to other retail groups in the interests of competition.

But press reports suggest that the top three will in any case not be allowed to carve up these 53 outlets between them. Safeway has also been approached by other potential buyers, including Marks & Spencer, Waitrose, the Co-op and even DIY group B&Q, according to the latest rumours.

All of which is particularly bad news for Sainsbury, former leader of the UK food retail sector but now languishing in third place. Sainsbury had been hoping to snap up a number of Safeway stores as part of the Morrisons deal as it struggled to keep pace with both Tesco and Asda, but its chances have now been further reduced by the addition of a number of other bidders to the list.

That Sainsbury is in dire need of a significant turnaround is clear from the latest market share data from TNS, released last week. The company saw its market share slide by 1.3 per cent to 16.1 per cent in the quarter to 12 October, thus dropping further behind Tesco (up 1.1 per cent to 27 per cent) and Asda (up 0.8 per cent to 16 per cent).

More worrying for Sainsbury is that Morrisons saw its share rise by the biggest amount during the quarter - from 5.9 per cent to 6.3 per cent - and if this level of growth can be maintained post Safeway, Morrisons could even overtake Sainsbury to move into third place.

As for Safeway itself, its market share was 9.2 per cent during the quarter, down by 0.6 per cent.

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