Somerfield

Infobox Company
company_name = Somerfield Stores Ltd
company_
company_type = Private
parent =
foundation = 1875
company_slogan = "Fresh and local"
location = Bristol, England, UK
key_people = John Lovering (Chairman), Paul Mason (Chief Executive),
industry = Retail
products = Groceries
revenue = £4.221 billion (2007-8) [The Sunday Times Top Track 100 , june 2008]
operating_income =
net_income = £ 226
num_employees = 23,741 (2007)
homepage = [http://www.somerfieldgroup.co.uk/ www.somerfieldgroup.co.uk] (Corporate Site) [http://www.somerfield.co.uk/ http://www.somerfield.co.uk/] (Customer Site)

Somerfield is a chain of small to medium-sized supermarkets operating in the United Kingdom. Operating as Somerfield Stores Ltd, the Bristol-based company emerged from the former Gateway chain in the 1990s and also previously owned the now-defunct Kwik Save chain of discount food stores.

Somerfield is the sixth largest food retailer in the UK, according to TNS Worldpanel, [ [http://news.bbc.co.uk/1/hi/business/5101038.stm BBC NEWS | Business | Sainsbury's basks in summer sales ] ] following the sale of the Kwik Save unit and the closure or sale of unprofitable stores, with 977 stores (as of January 2007). Also the 5 largest Private company in the UK.Somerfield has a 3.8% share of the UK Grocery Market in 2007, down from 4.5% in 2006.The five larger retailers "(in decending order of size)" are Tesco, ASDA, Sainsbury's, Morrisons and The Co-operative Group. The top four have specialties in larger superstores, while the Co-op has become the largest community retailer, with specialties in convenience stores and smaller supermarkets. At one point in early 2007, Somerfield was also briefly surpassed in size by Waitrose, and the independent grocers' distributor, Nisa-Today's, is comparable in size.

Somerfield, in 2006, declared its mission statement to “become Britain's favourite local grocery shop”. [ [http://findarticles.com/p/articles/mi_hb5245/is_200704/ai_n19860482 Grocer Magazine, April 2007] ] Somerfield's self-declared niche is to "be the leading small format retailer in the UK". For the 52 weeks ended 30 April 2005 Somerfield Group's turnover was £4.676 billion. Profit was £60.9 million before tax, and due to a tax credit it was £62.9 million after tax. These profits were up about a third on the previous year; the group has had very narrow profit margins for a number of years.

In July 2008, the Co-operative Group announced a deal to purchase Somerfield for £1.57 billion, creating the fifth largest supermarket chain in the UK. Once the sale process is completed, subject to approval from regulators, the Somerfield brand will be phased out.

History

The early years

The Bristol business was founded as grocer J H Mills in 1875, becoming a self-service supermarket chain named Gateway in 1950. Linfood Group owned the Frank Dee wholesaler and chain of 70 supermarkets when it acquired Gateway, a smaller Bristol-based supermarket chain, in 1977.Cite web
url=http://www.somerfieldgroup.co.uk/index.asp?sid=17
title=History
publisher=Somerfield Group
date=approx. 2006
accessdate=2008-06-29]

Acquisitions

Alec Monk at Dee, having escaped the takeover bid from Argyll (now part of Morrisons), decided to create his own supermarket empire. Two of the biggest acquisitions were of International Stores, bought from British American Tobacco in 1984, and Fine Fare, bought from Associated British Foods in the following year. By this time Dee had over 1,100 stores, most of them trading under the Gateway banner, and it had nearly 12% of the market, not far behind Tesco. Most of Dee’s outlets were small, high-street stores. Monk argued that there was a future for well-run conventional supermarkets as well as the large out-of-town stores.

However, by 1987 Dee running into problems, mainly because of the difficulty of integrating so many disparate businesses. Some disposals were made in that year, including the Linfood wholesaling operation. In 1988, Linfood took the name of "The Gateway Corporation" [ [http://www.library.ex.ac.uk/special/guides/archives/321-330/326-01.html Archives - University of Exeter Library and Information Service ] ] , and a new retailing chief was recruited from the US. Investors remained sceptical, and in 1989 Gateway was the subject of a £2bn takeover bid from a newly formed company, Isosceles; the deal was partly financed by a pre-arranged sale of 90 Gateway stores to Asda.

Isosceles era

When Isosceles, a newly created financial group led by David Smith and backed by several big investing institutions, bid successfully for Gateway in 1989 and took the company private, the plan was to restructure the business and refocus it on what were called “middle ground” outlets, falling between the big out-of-town superstores and smaller, inner-city neighbourhood shops; the average size of the stores was between 5,000 sq ft and 10,000 sq ft. The promoters of the Isosceles bid believed that, after this disposal and extensive restructuring of the rest of the portfolio, Gateway could become a viable competitor; the intention was to re-float the company on the stock market within 3-5 years. However, the bid was highly leveraged, and it was not clear that the new company would be able to fund the necessary modernisation of the business.

Some of the planned disposals of non-core businesses took longer than expected to complete. Financial strains led to the enforced departure of David Smith and other executives in 1991.

Introduction of Somerfield

In the following year the business was re-launched by a new chief executive, Bob Willett, and a decision was taken to rebrand the company's operations as Somerfield after a successful pilot scheme in 1990 and the company then built its success upon the new brand. alongside the existing Gateway and Food Giant chains. A small number of stores were also relaunched under a new Food Giant discount brand, with the first store opening in 1991. Somerfield owned 24-7, the failed home delivery business.

Two years later, with yet another chief executive, David Simons, in command, the company announced that the name of the holding company Isosceles plc was to be changed to Somerfield plc in 1994.Fact|date=December 2007, and most of its stores would trade under that brand; the Gateway name would disappear, although Food Giant would be retained as a discount operation.

According to "The Guardian", the holding company almost collapsed in the 1990s under a “mountain of debt”.Cite news
url=http://gateway.proquest.com/openurl?ctx_ver=Z39.88-2003&res_dat=xri:pqil:res_ver=0.2&res_id=xri:newsuk&rft_id=xri:newsuk:newsart:17855867
title=Somerfield shares soar thanks to 'bargain' price
work=The Guardian
date=1996-08-10
author=Ian King
page=39
publisher=via ProQuest News UK
accessdate=2008-07-17
quote=Amid rumours of possible legal action, there was particularly fierce criticism from creditors of Isoceles, the company which bought Somerfield in a disastrous £2.1bn management buy-out in 1989 but which subsequently came close to collapsing under a mountain of debts.Creditors of Isoceles are now expected to receive a pay-out approaching 80% of what they are owed.

] In 1996, Somerfield plc was floated on the stock market in an initial public offering, after the recovery had reached the point where flotation became feasible with a market value of around £600m, and the proceeds were used to repay banks that had lent to Isosceles.. At the time of the flotation the company’s market share had fallen to 5.3%, its lowest level for two years, but Simons claimed that the company was now clearly positioned in the market, and that the business would benefit from what he saw as the trend back towards high-street shopping. The aim was to become the UK’s strongest neighbourhood food retailer.

Questions remained about whether, at a time of intense competition both from discounters and from the bigger chains, Somerfield could generate adequate growth in sales and profits.

Kwik Save purchase

In 1998 the company took over the rival Kwik Save chain, [ [http://www.somerfieldgroup.co.uk/index.asp?sid=17| Somerfield Group : : : : ] ] with the remaining "Food Giant" stores being rebranded under that name.

The deal, which was worth £1.25bn, made the new group the fifth largest supermarket chain in the UK. The combined group operated from 1,400 stores, and the companies initially said the merged group would build on the strength of the two brands.

Kwik Save was strongest in the north of England, with 40% of its stores in Lancashire, the north east and Yorkshire, where Somerfield had just 10% of its stores. In contrast, Somerfield had more than half of its stores in the south and south west of England and East Anglia, where Kwik Save had only 15% of its stores.

Although the deal was billed as a merger, Somerfield made a recommended offer for Kwik Save. Kwik Save shareholders received seven Somerfield shares for every six Kwik Save shares they held. Following the deal, Somerfield investors owned 62.5% of the enlarged group.

Kwik Save, after performing well in the 1980s, had found itself squeezed between the Continental discounters on one side and the bigger groups such as Asda and Tesco on the other. It had also made the mistake of expanding its product range from about 600 to about 2,500 lines, pushing up costs and prices.

Observers questioned whether putting together two very different businesses would solve either’s problems. The initial plan was to convert most of the Kwik Save stores to the Somerfield name, but the group continued to suffer from a disparate store portfolio, the result of numerous ill-digested acquisitions. At the end of 1999 Simons, facing strong criticism from the City, announced plans to sell a third of the company’s 1,400 stores. He admitted that the group had underestimated the difference between Somerfield and Kwik Save, and had failed to support and maintain the Kwik-Save brand.

Kwik Save had over-expanded with a badly focused portfolio of stores, many in poorer areas, and the company was in a worse state than Somerfield's management had realised.

The original plan was to transfer all Kwik Save stores to the Somerfield fascia, but it quickly became clear that many outlets were not suitable for conversion, either due to size or location. Also, the downmarket wooden shelving and poor quality fittings used by Kwik Save meant that every conversion required a full refurbishment of the store - Simply changing the signage and uniforms would have risked dragging the carefully developed Somerfield brand downmarket. Instead, the larger Kwik Save stores were converted, some were sold or closed and the chain became a trading division of Somerfield Stores Ltd, sharing its supply chain and back office systems with Somerfield. For some years, the own-brand products in Kwik Save stores were "Somerfield", although this policy was reversed once it was decided to keep the brand.

ale of Superstores

The core chain began to divest its superstore portfolio in 1999 (including many of the re-branded Food Giant stores) and now focuses on small to medium sized stores on high streets and in local shopping centres. Fact|date=December 2007

John van Spreckelsen

A few months later Simons resigned, and John van Spreckelsen, formerly chief executive of Budgens, the convenience food retailer, was brought in as chairman. The new strategy was to keep Somerfield and Kwik Save as separate businesses, while sharing common services in such areas as information technology and corporate finance. By mid-2002 – half way through what was seen as a five-year recovery programme – the company announced a return to the black, and dividends were resumed after a two year break. But, as with Safeway but in a far more acute form, the positioning issue remained unsolved.

Somerfield was the product of opportunistic acquisitions, driven more by financial engineering than by any conception of where the company should be positioned. The focus on medium-sized High Street supermarkets was largely a matter of making the best of a very difficult job; the main problem, which had not been solved by the end of the 1980s, was to make some sense of the heterogeneous collection of stores which it had acquired through its numerous takeovers.

New formats

Somerfield changed its logo from a rectangular shape to a more contemporary design and opened a number of store formats, such as Somerfield 'Essentials' and Somerfield 'Market Fresh'. It further changed its brand image by introducing newer own-brand lines such as "Best Ever", "Healthy Choice", and a new advertising strapline: "giving you what you want". A low-price own brand label called 'Simply Value' was introduced to compete with other low cost own brand products such as Tesco Value. [ [http://www.somerfield.co.uk/whatsinstore/productrange/simplyvalue/index.asp simply value | Product range | Whats in store | Somerfield ] ]

In August 2006, around 50 in-store delicatessen counters were closed as they had not been profitable.Fact|date=December 2007

afeway Compact

In October 2004, Somerfield acquired 114 Safeway Compact stores from Morrisons, which were subsequently re-branded under the Somerfield name. [ [http://business.timesonline.co.uk/tol/business/industry_sectors/retailing/article498770.ece Somerfield takes on 114 Safeway stores - Times Online ] ] This deal was referred to the Competition Commission. After completing its investigation, the Commission instructed Somerfield to sell 12 stores.http://www.catribunal.org.uk/documents/Jdg1051Somer13022006.pdf] In September 2005, Somerfield announced its intention to appeal against the decision, a process delayed by a takeover bid for the chain. The Competition Appeal Tribunal upheld the Commission's decision in February 2006. Somerfield therefore had to proceed with sale of the 12 stores. However, the sale of Kwik Save in February 2006 is likely to have removed the potential clashes between some of the offending stores.

2005 purchase

Somerfield was subject to takeover speculation from 2003 onwards, a substantial part of the group's appeal to bidders lying in the value of its property portfolio rather than its trading operations, as this offered the potential to leverage its financing after a takeover. Fact|date=December 2007

Retail entrepreneurs John Lovering and Bob Mackenzie made two failed bids in 2003. [http://news.bbc.co.uk/1/hi/business/4249897.stm BBC NEWS | Business | Somerfield in £1bn takeover bid ] ] In 2005, Icelandic venture capital group Baugur made an approach, while United Co-operatives and London & Regional Properties also expressed an interest, but both groups dropped out of the running. In October 2005 Somerfield's board accepted a bid of around £1.1 billion from a consortium of buyers. [ [http://business.scotsman.com/ViewArticle.aspx?articleid=2688587 Scotsman.com Business ] ] This was subject to shareholder approval, but was not referred to the Competition Commission as the buyer was not another UK retailer. Fact|date=December 2007

Somerfield plc was acquired by a consortium consisting of Apax Partners Worldwide LLP, Barclays Capital and the Tchenguiz Family Trust on 21 December 2005, when the name of the group changed to Somerfield Ltd. [ [http://www.abcmoney.co.uk/news/1520051132.htm Somerfield accepts 1.1 billion-pound Apax offer ] ]

The aim of the new owners was to simplify the business and attract new customers. The first move was the end of the "SaverCard" loyalty scheme in May 2006 with promotional deals becoming available to all customers. A new point-of-sale was introduced to make promotions and price cuts more visible to customers. Somerfield's three own-label brands have also been overhauled; the budget "Makes Sense" range has become "Simply Value", the low calories "Good Intentions" range has become "Healthy Choice", and the premium "So Good" range has become "Best Ever!". [ [http://www.somerfield.co.uk/whatsinstore/index.asp What's in store | Somerfield ] ]

Kwik Save sale

In 2005, Somerfield re-branded half of Kwik Save's Scottish stores under its own name and closed the remainder, thus removing the brand from the marketplace north of the border. Some other stores, including some part of the Somerfield estate, such as Buxton and Balham, were sold to Waitrose, Sainsbury's and other retailers.

After the group was taken over, it was reported that the new owners found the Kwik Save chain was losing £40m per year, effectively cancelling out around 40% of the profits generated by the Somerfield division. As a result, it sped up the conversion of stores from Kwik Save to Somerfield. On 27 February 2006, Somerfield Stores Ltd sold the Kwik Save brand and 171 stores to BTTF, an investment vehicle headed by Paul Niklas, for an undisclosed sum. [ [http://news.bbc.co.uk/1/hi/business/4755176.stm BBC NEWS | Business | Somerfield sells Kwik Save stores ] ] Somerfield re-branded the 102 Kwik Save sites it has retained under its own name and a further 77 stores were sold to other retailers, thought to include Netto and Aldi. Somerfield is now focused on a single brand.

Subsequent to the initial sale, a further nineteen Kwik Save stores were acquired by BTTF, including some of those included in the Competition Commission investigation ruling into the Safeway Compact takeover.

tore rationalisation

In August 2006 a series of store closures was announced as Somerfield's new owners continued their restructuring activity. Some of these were poorly performing Somerfield stores, but most were former Kwik Save sites that had not proved successful after being converted to Somerfield stores in 2006. These had been retained on a trial basis and a sales performance had been closely observed in the period since conversion.

Some stores were sold to other groups, including Sainsbury's, which bought 12 with an average size of 11,000 sq ft, while others were closed completely. This was done on a local, store by store basis and there was no official announcement of the process as an integrated restructuring programme.

With unprofitable branches closed or sold, attention has turned to revitalising the remaining store estate. Following a successful trial in eight trial stores in 2006, 'Project Evolution' is now being rolled out very quickly across the store estate. The project plans to improve stores by altering merchandise layouts, removing weak product lines and adding new products to each store. Accessibility is also improved in these stores through lower top-shelf heights and clearer category signage. Stores are also being redecorated with new external signage and branding as well as interior improvements.

Having successfully bought 140 Texaco fuel stations in 2007, Somerfield is now in the process of integrating its brand. Somerfield plans to triple the size of these shops, using a similar format to its' popular convenience stores. Signage and products will be replaced with the Somerfield brand. [ [http://www.guardian.co.uk/business/2005/feb/17/supermarkets Somerfield buys string of Texaco petrol stations with Shops] ]

In October 2006, it was revealed that 40 Somerfield stores, including many retained Kwik Save branches, had been sold to Kwik Save. These stores were mainly converted Kwik Save stores that were performing financially badly. [ [http://www.theappointment.co.uk/news/default.asp?submitted=True&DateType=4&Keywords=kwik%20save&EndDate=&ID=1803 The Appointment magazine is now online ] ]

In November 2006, the company also sold a further 11 stores to Marks & Spencer to trade under the M&S "Simply Food" brand. These included stores in Blackheath in S.E. London, Broughty Ferry in Dundee, and Petersfield and Alton in Hampshire.

In March 2007, it was announced that Somerfield was to drop the "Market Fresh" format and concentrate upon the single Somerfield format.Fact|date=December 2007

2008 purchase

On 16 July 2008, it was announced that Somerfield will be acquired by the Co-operative Group for £1.57 billion, subject to approval from the Office of Fair Trading.Cite web
url=http://news.bbc.co.uk/1/hi/business/7508982.stm
title=Co-op buys Somerfield for £1.57bn
publisher=bbc.co.uk
date=2008-07-16
accessdate=2008-07-16]

The build-up to this announcement began in late 2007, when the parent private equity consortium, that had acquired Somerfield in December 2005, put the chain up for sale.Cite news
url=http://gateway.proquest.com/openurl?ctx_ver=Z39.88-2003&res_dat=xri:pqil:res_ver=0.2&res_id=xri:newsuk&rft_id=xri:newsuk:newsart:1489565571
title=Morrisons eyes up Somerfield sell-off
work=Daily Telegraph
date=2008-06-04
author=James Hall
page=2] News reports valued the chain at over £1.5 billion.Cite news
url=http://www.thenews.coop/index.php?content=story&id=1291
title=Co-op Group bids to buy Somerfield chain
date=2008-04-17
quote=The Co-operative Group has confirmed for the first time that is trying to buy the Somerfield chain of food stores in a deal worth at least £1.5 billion.
publisher=Co-operative News] Somerfield appointed Citigroup to manage the sale, and a preference to sell as a going concern rather than on a piecemeal basis was reported.It emerged that four provisional bids were made. Only the Co-operative Group, the UK's largest co-operative, publicly announced purchase talks, aiming to complete due diligence for the entire estate of 900 Somerfield stores in the third quarter, but would be expected to sell a minority of stores.Cite news
url=http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2008/04/17/bcncoop117.xml
title= Co-op admits to Somerfield takeover talks
date=2008-04-19
author=Angela Monaghan
accessdate=2008-06-29
work=telegraph.co.uk] ASDA was thought to be interested in around 600 stores, whilst Sainsbury's wanted 350.Fact|date=June 2008 On the 24th June, a Thomson Reuters newswire reported sources indicating that the Co-operative Group's acquisition of Somerfield could be finalised at the start of July, in a final deal worth £1.7 billion. [Cite news
url=http://www.thenews.coop/news/Retail%20Societies/1358
title=Somerfield deal is on
date=2008-06-27
quote=The Co-operative Group’s ambitious £1.7 billion deal to buy the Somerfield chain of 900 food stores is almost complete and will be finalised in the next fortnight
work=Co-operative News] Earlier in June, Morrisons confirmed that it was not bidding for Somerfield, but would consider the purchase of any stores that are sold after the acquisition. [Cite news
url=http://uk.reuters.com/article/mergersNews/idUKWLA440020080605
title=Morrison will look at individual Somerfield stores
accessdate=2008-06-29
date=2008-06-05
publisher=Reuters] Newspaper sources said that other major supermarket chains are also interested in such purchases. [Cite news
url=http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2008/05/25/cncoop125.xml
title= Rival chains check out Somerfield stores
date=2008-05-26
author=James Hall
publisher=telegraph.co.uk]

In July 2008, the Co-operative Group announced a deal to purchase Somerfield for £1.57 billion, creating the fifth largest supermarket chain in the UK. Once the sale process is completed, subject to approval from regulators, the Somerfield brand will be phased out.

Charity of the year

Somerfield employees vote for a charity to support every year. Recent beneficiaries have included:
*2007-8 Macmillan Cancer Support
*2005-6 Association of Children's Hospices
*2003-4 Muscular Dystrophy Campaign
*2002-3 Meningitis Trust

References in popular culture

The branch of Somerfield in Wells, Somerset, England had featured prominently in the film "Hot Fuzz" and Somerfield branding was clearly visible. In the film the manager of the supermarket Simon Skinner, played by Timothy Dalton, is a charming but sinister individual. The role the supermarket plays in the film includes a gun battle scene between police and staff members in full Somerfield uniforms. The reason the store was chosen was due to the director of the film Edgar Wright having formerly been a shelf stacker at the store. [ [http://www.movie-locations.com/movies/h/hotfuzz.html Filming Locations for Hot Fuzz ] ]

References

External links

* [http://www.somerfieldgroup.co.uk Somerfield Ltd - Corporate information]
* [http://www.somerfieldgroup.co.uk Somerfield Ltd history]
* [http://www.somerfieldgroup.com/download/history/historyofsomerfield.pdf Poster] – history of Somerfield 1875–1998
* [http://www.somerfield.co.uk/ Somerfield.co.uk - Information for shoppers]
* [http://www.somerfieldgroup.co.uk/index.asp?sid=201&press_ID=1090 Company press release - Somerfield acquires 114 Safeway compact stores]
* [http://news.independent.co.uk/business/news/story.jsp?story=575706 Independent.co.uk - Somerfield to take over small Safeway stores]
* [http://news.bbc.co.uk/1/hi/business/4340772.stm BBC report on Somerfield's board's acceptance of the takeover (14 Oct 2005)]
* [http://news.bbc.co.uk/1/hi/business/4549100.stm BBC report on the finalisation of the takeover (21 December 2005)]
* [http://www.somerfieldgroup.co.uk/index.asp?sid=201&press_ID=1131 Somerfield Ltd press release announcing sale of Kwik Save (27 February 2005)]
* http://www.itv.com/Lifestyle/trinnyandsusannah/AboutUndresstheNation/Uniforms/default.html