Safeway (UK)

Infobox Defunct Company
company_name = Safeway plc
company_
slogan = Lightening the load
fate = Taken over
successor = Wm Morrison Supermarkets
foundation = 1961
defunct = 24 November 2005
location = flagicon|UK Hayes, Greater London
industry = Grocery, General merchandise
key_people = David Webster, Non-Executive Chairman,
Carlos Criado-Perez, Chief Executive
products =
num_employees =
parent = Wm Morrison "(after 8 March 2004)"
subsid =
Website = www.safeway.co.uk

Safeway was a chain of supermarkets and convenience stores in the United Kingdom. It was acquired by Wm Morrison Supermarkets in March 2004, and most of its 479 stores were rebranded as Morrisons, with some being sold off. The brand disappeared from the UK on 24 November, 2005.

Background

The chain was founded in the UK in 1962 as a subsidiary of the US retailer Safeway, Inc. The parent company was acquired by Kohlberg Kravis Roberts (or KKR) in 1986, and in the following year, the UK business was sold to Argyll Stores. Argyll Stores was the forerunner to Safeway plc, and a brief history is outlined below:
*1980: Argyll Foods (later Argyll Group plc) formed through merger of Louis Edwards and Morgan Edwards.
*1981: Argyll Foods purchases Oriel Foods (Lo·Cost, Mojo and Snowking).
*1982: Argyll Foods acquires Allied Suppliers (Presto, Liptons, Galbraith and Templetons).
*1984: Argyll Foods acquires Hintons stores in the North East.
*1985: Presto becomes Argyll's principal fascia for larger stores and Lo·Cost smaller stores. New Presto logo launched. Plans made for new Presto regional distribution centres in Bristol, Wakefield, Bathgate and Welwyn.
*1986: Presto trades from 540 stores.
*1987: Safeway trades from 133 stores. Argyll acquires Safeway UK.

Argyll Stores

The main challenge to the market leaders during the 1980s came from two new entrants, Argyll and Linfood Holdings.

The former was the creation of three Scottish businessmen – James Gulliver, Alistair Grant and David Webster. Gulliver's background was in retailing; he had been chief executive of Fine Fare during the 1960s. Grant was a marketing specialist, having worked with Gulliver at Fine Fare and previously with Unilever. Webster was a merchant banker.

In the early 1970s they acquired control of Oriel Foods, a quoted company engaged in food manufacturing and wholesaling. The plan was to use Oriel as the vehicle for further acquisitions.

However, in 1974 they accepted an offer for Oriel from RCA Corporation of the US.

Gulliver, Grant and Webster stayed with RCA for three years, but in 1977 they struck out on their own. James Gulliver Associates was formed – the name was later changed to Argyll – and it embarked on a series of opportunistic acquisitions.

Its first move into food retailing came in 1978 with the purchase of Morgan Edwards, a grocery distributor which owned the Supavalu chain of discount stores. The next step was to buy back Oriel Foods from RCA; this brought with it a retail chain, Lo-Cost Discount Stores, which was merged with Supavalu.

In 1981 Argyll moved into a higher league with a hostile £91m bid for Linfood Holdings, a wholesaling and retailing group which had annual sales of over £1bn; Argyll's own stock market value at the time was only £46m One of Linfood's attractions for Argyll was the Gateway supermarket chain, together with some hypermarkets built in partnership with Carrefour, the French retailer. However, the bid was referred to the Monopolies Commission, and Argyll withdrew. Linfood (later re-named Dee Corporation), under a newly appointed chief executive, Alec Monk, went on to become a major force in food retailing. The company evolved into what is now Somerfield.

Argyll then turned to Sir James Goldsmith's Allied Suppliers, making an agreed £101m offer for a business which, though it had stagnated under Goldsmith's ownership, had some valuable retailing brands. Argyll, now run by Grant following Gulliver's retirement, used Presto, one of the Allied chains, as its principal retail brand, with Lo-Cost being maintained as a discount operator. The construction of larger stores was speeded up, and regional distribution centres were established.

Presto Foodmarkets

Presto Foodmarkets was the name of a chain of supermarkets established in the north of England and in Scotland in 1977. The Presto name derives from the town in which the first store was opened - Prestonpans.

In 1982, Presto's parent company Allied Suppliers, which also operated smaller supermarkets under the Liptons name, was taken over by Argyll Foods plc. In 1984 Argyll acquired the Thornaby-based Amos Hinton plc which operated 55 supermarkets under the Hintons name in the North East of England, Cumbria and Yorkshire.

In 1985 all of the Hintons and Liptons stores were either trading as Presto or had been closed. Some smaller stores were converted to the Lo-Cost Discount format.

In 1987, Argyll acquired the UK division of the American Safeway chain and began converting the larger Presto superstores to the Safeway fascia. The Presto name continued in the North East of England and Scotland for several years and even enjoyed a brief revival in the early 1990s when several new Presto stores began to open and a range of Presto own-label products was introduced. The last new Presto stores opened in 1995.

The revival was short lived, in 1995 many smaller Presto stores were sold to a consortium of Spar retailers. During 1997 several Presto stores were converted to Safeway and by the Spring of 1998 the final Presto stores were either converted or closed down.

Argyll and Safeway

Argyll and Safeway UK merged in 1987 when Safeway Inc.'s United Kingdom subsidiary, "Safeway Food Stores" as it was then known, was put up for sale. Argyll eventually secured it for the sum of £681m, with £600m raised through a rights issue that was three times over-subscribed. The merger of Argyll and Safeway was hailed by commentators as one of the most successfully integrated retail combinations in the UK, bringing together Argyll's experienced management team with a strong but somewhat under-developed retail brand.

In the early 1990s, Argyll consolidated the two portfolios, first converting all larger stores to the Safeway brand and, later, extending the programme to the smaller stores, thus creating a single fascia group under the Safeway name by 1996. All stores traded simply as Safeway, regardless of size, in contrast to rivals such as Tesco, where different sized stores are branded as "Tesco Express", "Tesco Metro", etc. When this process was completed, Argyll itself became Safeway plc.

Safeway's stores were generally in better locations and more profitable than those of Argyll, with a different product mix more focused on fresh foods. Immediate savings were made in buying and central services following the merger, while there was a push to expand Safeway's own-label products. By 1991 the number of Safeway-branded stores had risen to 310 (including 81 new stores) and the average store size had risen to just under 20,000 square feet.

Early 1990s

By the early 1990s the impetus for the growth of profits which had come from integrating Argyll and Safeway was slowing down. Although Safeway had become the third largest retailer (thanks partly to the decline of Asda and Gateway), its sales of £4.5bn were substantially less than Sainsbury's (£7.8bn) and Tesco (£6.3bn). The average size of its stores was also smaller than of its two bigger rivals, and it was less well placed in the lucrative markets of London and the South East.

One possibility, at the start of the decade, would have been to take over, or to merge with ASDA when that company was in the depths of its financial crisis. This was seriously considered and, on paper at least, it would have provided substantial economies of scale. The plan would have been to convert Asda stores – or at least those Asda stores which were worth keeping – to the Safeway brand. The combined group's sales volume would have been well above that of Tesco and Sainsbury. But the risks of taking on Asda in its weakened state were forbidding; its store portfolio was mixed, and at that stage the Safeway brand looked to have ample growth potential, without need for large-scale acquisitions.

Project 2000

Over the next few years competitive pressures intensified. Pre-tax profits fell by 13% in the year to April 1994, prompting a wide-ranging strategic review known as "Safeway 2000", led by the then chief executive, Collin Smith, with assistance from McKinsey Consulting. This involved the sale of the Lo-Cost discount operation and the re-design of the Safeway stores to appeal to the family shopper.

Safeway was the first of the large supermarket groups to introduce a loyalty card, which it called ABC (Added Bonus Card). As this was initially only introduced into selected stores on a trial basis, however, Tesco is able to claim the title for the first nationwide introduction of a loyalty Card, with Clubcard.

Although profits fell again in 1994-95 because of restructuring costs, the company appeared to be making progress in creating a distinctive image for its stores. The scale problem had not gone away, however, and it was doubtful whether, in the long run, Safeway could survive as a relatively weak number three, pursuing roughly the same strategy as the two leaders.

Anxiety on that score led David Webster, who had taken over as chairman in 1997 after Grant's retirement, to open merger talks with Asda. These talks were called off after a few weeks following a leak to a Sunday newspaper, then briefly revived in the early months of 1998 before breaking down again. The outcome, if the negotiations had been successful, would probably have been the disappearance of the Safeway name and the emergence of a stronger Asda, still focussing on discount prices but with a bigger volume to support it. This might have achieved a more secure future for Safeway than continuing the struggle to keep up with Tesco and Sainsbury.

When Somerfield announced a takeover of Kwik Save in an all-share deal in March 1998, the media questioned what the future held for Safeway. One possibility was to consider a merger with the much smaller, Yorkshire-based Wm Morrison Supermarkets. However, its chairman, Ken Morrison, rejected the idea. This made a bid impossible, considering the various members of the Morrison family then held 40% of Morrison shares between them.

"New Safeway"

By the early months of 1999 Safeway was coming under renewed criticism from investors. Its shares had under-performed the food sector by 30 per cent over the previous five years; it had been pushed back into fourth position by Asda; and it did not have enough stores of adequate size to offer a comprehensive non-food range.

In July, Safeway announced the appointment a new chief executive, Carlos Criado-Perez, who had held senior posts in Wal-Mart's international division.

The problem was how to distinguish Safeway from Tesco and Sainsbury's, and how to minimise its scale disadvantage. According to estimates made by the Competition Commission, Tesco was able to negotiate significantly lower prices from its suppliers than Safeway – averaging about 3 per cent on big-selling branded items.

Criado-Perez's response was to introduce selective deep discounting, the so-called high/low pricing formula, which was later branded as 'substantially discredited' by Morrisons management, making deep price cuts on a limited set of products for a limited period. Criado-Perez also abandoned Safeway's loyalty card, arguing that these cards were no longer an effective marketing tool. This project was branded 'New Safeway'.

The new approach to pricing was one of the four pillars of Safeway's strategy, the others being "Best for Fresh Foods", "Best for Customer Service", and "Best for Product Availability". Criado-Perez envisaged a five-year programme of developing the stores along these lines, to be completed by 2004.

However, the Safeway Management realised that they needed more stores to compete, considering, and rejecting, takeover approaches for Budgens, an enlarged Somerfield and Woolworths. David Webster rejected these ideas, as he thought Wal-Mart could counter-bid, partly because Safeway would probably have to pay partly in shares, while Wal-Mart could pay for the company entirely in cashFact|date=July 2008.

In 2002, Safeway was the fourth largest supermarket chain by sales in the UK. However, it was growing more slowly than other large UK chains and this was reflected in a share price below the values of the group's assets, leading to the various takeover rumours that circulated during 2002, indicating the City was unconvinced with the Criado-Perez strategy.

Takeover bids

On January 9, 2003, the much smaller Wm Morrison Supermarkets - with 119 stores largely based in the North of England - made a surprise offer to purchase the chain, offering 1.32 new Morrison shares for each Safeway share, with the cooperation of the Safeway board. However, this served only to start a stampede of other potential buyers. J Sainsbury plc, ASDA, KKR (the company which sold Safeway to Argyll in 1986)), Trackdean Investments Limited (controlled by Philip Green, owner of BHS and Arcadia), and Tesco all said they were considering making offers.

They were all asked to make submissions to the Office of Fair Trading (OFT) for approval under the Fair Trading Act 1973. On January 23 Safeway's board dropped its recommendation of the Morrisons offer. Kohlberg Kravis Roberts later dropped its proposal. On March 19 the remaining proposals except for Trackdean's (which was said to raise no competition issues) were referred to the Competition Commission by the Trade and Industry Secretary, Patricia Hewitt. The report of the Competition Commission was made public on September 26. A takeover of Safeway by Sainsbury, ASDA or Tesco was "expected to operate against the public interest, and should be prohibited". However, a takeover by Morrisons was held to be acceptable on the condition that 53 stores of the combined operation be sold, due to local competition issues. Patricia Hewitt accepted these recommendations.

Philip Green announced on 30 October that he was not proceeding with a takeover bid, on the basis that it was not clear whether approval could be obtained to sell off individual stores to other chains. On 15 December, Morrisons, the only remaining bidder, made a new offer of 1 Morrisons share plus 60 pence for each Safeway share, again with the cooperation of the Safeway board. On 11 February 2004 shareholders of both Wm Morrison and Safeway voted to approve the merger of the two companies, subject to the result of two High Court rulings later in the month.

Takeover completion

On 8 March, 2004 the takeover was completed and Morrisons proceeded to rebrand the supermarkets and superstores under its own name; the first store to be converted was the biggest Safeway store in the UK - Milton Keynes. The convenience stores and smaller supermarkets were initially rebranded as "Safeway Compact" and continued to trade under that name until a future strategy had been finalised. This change was only ever intended to be temporary, so only secondary items such as till rolls and staff name badges received the "Compact" logo. External signage remained simply as Safeway, while own-brand products and carrier bags displayed the Morrisons logo.

The converted stores, other than those earmarked for disposal by the Competition Commission, were predominantly those over 25,000 sq ft, with separate car parks. Within a few weeks, Safeway carrier bags were replaced by those of Morrisons and the new owner's brand name products began to appear in Safeway stores. The best parts of the Safeway own-brand offer, such as "The Best" range of high quality foods, and "Eat Smart" range of healthy foods, were adopted across the Morrisons chain, with a small grey silhouette Morrisons logo replacing the Safeway name on the packaging. In July 2004, Morrisons shocked the stock market with its first ever profits warning, largely caused by falling sales at Safeway stores. It emerged that Safeway had changed its accounting system just three weeks before the takeover and inflated its books by taking early bonus payments from suppliers, thus creating a deficit in excess of £180 million when the Morrisons accounting system was applied.

There was much initial controversy surrounding who was to blame for the early problems in integration. Morrisons and Safeway applied supplier commission at opposite ends of the scale - Safeway at the beginning of a deal and Morrisons at the very end. Safeway insiders claimed that the new accounting system had been in production for over two years prior to the takeover and said that Morrisons had full knowledge of the change in system before their takeover.

It has since been admitted by Morrisons itself that the in-house finance team was ill-equipped for the task of integration and management of the newly enlarged business, which contributed in part to the early problems and profit warnings.

tore disposals

Originally 52 stores were to be compulsorily divested after the takeover, but this was reduced to 50 after one Safeway store in Sunderland was burned down and the lease ended on another in Leeds city centre. John Lewis Partnership purchased 19 to be part of its Waitrose chain, while J Sainsbury plc purchased a further 14, and Tesco bought 10 in October 2004. In late 2004 it was announced that the 114 smaller 'Safeway Compact' stores were to be sold off to rival supermarket chain Somerfield in a deal worth £260.2m. One of the main reasons was the Morrisons "Market Street" store format, which is better suited to larger stores, while Somerfield is known more for smaller outlets. Also, Morrisons senior management had realised that the challenge of integrating the larger stores would keep them fully occupied in the short term.

In Northern Ireland, Morrisons sold Safeway Stores (Ireland), a former joint venture with Fitzwilton Group that Safeway had subsequently taken control of, to ASDA. This included a store in Bangor which actually opened after the Morrisons takeover, five years after Safeway announced a store there.

Morrisons continued to sell and close stores not covered by the Competition Commission ruling which it felt did not fit with the scale and layout of its "Market Street" format. In total, 254 stores were sold off by October 2006, which left the chain with 367 stores. 72 stores were sold that were neither part of the original Competition Commission ruling or part of the Safeway Compact portfolio.

One of largest single purchases in 2005 was that of five stores by Waitrose, bringing the firm as far north as Durham for the first time. Unlike other operators, most notably Tesco and Sainsbury's, Morrisons has chosen not to move into the convenience store sector, as this fell contrary to the Morrisons business plan. In May 2005, Morrisons announced the termination of Safeway's joint venture convenience store/petrol station format with BP. Under the deal, the premises were split 50/50 between the two companies. Five sites were subsequently sold on to BP, while Morrisons sold the rest of its sites to Somerfield and Tesco, which both maintain a presence in this market sector. The retained BP sites were re-branded simply as "BP Food Store", maintaining the Safeway POS and in-store signage. They are now managed by BP Retail and supplied by the Nisa Today wholesale group. Morrisons also sold Safeway's Channel Island stores, in Guernsey and Jersey, to C.I. Traders. These stores have retained the Safeway name, albeit with a modified logo [http://www.citraders.com/c_retailsafe.html] .

In the Isle of Man the main Douglas store was sold to Shoprite (a Manx supermarket chain), and the Ramsey store was sold to the Manx Co-op.

In total, Morrisons has raised £1.36 billion from selling off unwanted assets.

Morrisons has re-branded the Safeway store in Gibraltar, which is currently classified as a 'Rump' store, and applied for planning permission for considerable expansion in October 2006.

Disappearance

The last of the 220 Safeway stores to be converted re-opened on 24 November 2005, while any remaining stores not suitable for conversion or sale were closed by 26 November 2005. This meant that the brand had disappeared from the UK after 43 years. Re-branded Safeway stores continue to operate in the Channel Islands, while unconnected Safeway companies remain in the USA, Australia and [http://www.safeway.com.jo Jordan] .

Further information

*A store list from May 2003, showing all the branches operated by Safeway before the takeover, can be found here [http://production.investis.com/safewayplc/reports/annrep03/findus.pdf] .
*The last annual report to shareholders, as an independent company before the firm takeover speculation, the Safeway plc Annual Report and Accounts 2002, can be found here [http://production.investis.com/safewayplc/reports/2002-05-15/ar2002.pdf] .
*The Safeway plc Annual Report and Accounts 2003 can be found here [http://production.investis.com/safewayplc/reports/annrep03/annrep03.pdf] .

ee also

*Morrisons
*Supermarkets in the United Kingdom

External links

* [http://www.morrisons.co.uk/ Morrisons Website]
* [http://production.investis.com/safewayplc/whatsnew/ Safeway plc Archive Website]
* [http://www.guardian.co.uk/supermarkets/story/0,12784,1074828,00.html Green leaves Safeway door open] ; Guardian Unlimited; 31 October 2003
* [http://news.bbc.co.uk/1/hi/business/3319601.stm Morrisons in £3bn bid for Safeway] ; BBC; 15 December 2003.
* [http://www.reuters.co.uk/financeCompanyNewsArticle.jhtml?storyID=4655026 John Lewis buys stores from grocer Morrison] ; Reuters, 25 March 2004
* [http://www.computing.co.uk/computing/news/2139102/morrisons-turns-safeway-supply-chain-systems Morrisons turns off Safeway supply chain systems] ; Computing, 29 June 2005
* [http://news.bbc.co.uk/1/hi/business/4463882.stm Safeway disappears after 43 years ]