Ailing Kwik Save to close 107 stores

Kwik Save became the latest casualty in the cut-throat supermarket battle yesterday when it announced plans to close 107 stores, threatening 1,900 jobs. The closures are part of a wholesale shake-up of the beleaguered group which is caught between the superstores such as Tesco and Sainsbury and the cheaper continental discounters such as Aldi.

The restructuring accompanied a plunge in pre-tax profits from pounds 125m to pounds 2.8m, hit by an pounds 87.5m provision to cover the cost of the closures. The shops will close between January and September though the company hopes either to redeploy staff or to achieve the cuts through natural wastage.

Chief executive Graeme Bowler insisted that in spite of its problems Kwik Save still had a place on Britain's high streets. "This is a company that is generating pounds 3.5bn of sales, has nine million customer transactions every week and is making pounds 90m profit."

His finance director Derek Pretty stressed the company's strong cash flow and balance sheet: "This is not a company which is on its knees."

The eight-month review was undertaken by Andersen Consulting, which was paid pounds 4m in fees for the project. The result is that Kwik Save intends to retain its marketing proposition as a discount supermarket while moving slightly up-market.

Store layouts and lighting will be improved. Trading hours will become more flexible to suit each location though it has ruled out a "7-11" convenience store approach. A new Kwik Save own label will be introduced, with the first ranges available from next spring. More emphasis will be placed on fresh foods, convenience foods, health and beauty products and over- the-counter medicines.

The stores will be made less cluttered with lower shelving. Fresh fruit and vegetable concessions will be moved inside the main store so customers only have to queue at one check-out.

Investment in staff training will be increased. There will be more investment in new technology with better point-of-sale systems and re-ordering processes. The management team has also been strengthened, with Phil Smith joining as marketing director and new buying and personnel directors appointed.

The total cost of the changes will be around pounds 300m and will take three to five years to complete. Mr Bowler said Kwik Save would establish a position as a popular location for weekend and "top-up" shopping. He hopes to increase the average customer spend per transaction from the current pounds 9.20 to over pounds 10.

Kwik Save shares rose 17.5p to 321.5p, partly because the company maintained the dividend. However, City analysts were sceptical over the new strategy. Paul Smiddy of Credit Lyonnais Laing said it was open to question whether it would increase sales.

Frank Davidson of James Capel called it "deeply unimpressive". He added: "Old, marginal stores lose volume. But what can they do? Perhaps they will eventually be taken over by Aldi. It would be a kindness."

Mr Bowler said the board had considered selling the business but denied that it had received any approaches from Aldi. No other approaches were received.

He said that Dairy Farm, which owns a 29 per cent stake in the business, was "supportive of Kwik Save and of its management".

Following the closure programme Kwik Save will have 872 stores. It currently has 23,000 staff.

In the 53 weeks to August Kwik Save's pre-exceptional profits fell 28 per cent to pounds 90m. the final dividend was unchanged at 20p. Like-for-like sales were flat over the year.

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