The Investment Column: Safeway takes its eye off the ball
Your support helps us to tell the story
From reproductive rights to climate change to Big Tech, The Independent is on the ground when the story is developing. Whether it's investigating the financials of Elon Musk's pro-Trump PAC or producing our latest documentary, 'The A Word', which shines a light on the American women fighting for reproductive rights, we know how important it is to parse out the facts from the messaging.
At such a critical moment in US history, we need reporters on the ground. Your donation allows us to keep sending journalists to speak to both sides of the story.
The Independent is trusted by Americans across the entire political spectrum. And unlike many other quality news outlets, we choose not to lock Americans out of our reporting and analysis with paywalls. We believe quality journalism should be available to everyone, paid for by those who can afford it.
Your support makes all the difference.It has been a telling few weeks in the supermarket sector. The attempted pounds 9bn merger between Asda and Safeway always seemed to indicate that the two companies needed more scale to fight the battle against Tesco and Sainsbury's and now we know which company needed that deal most.
Yesterday's profits warning from Safeway was a belter by any standards. Non-existent sales growth and a warning on full-year profits came on top of flat half-year profits and an interim dividend held for the first time since 1992. It is obvious who has lost out most to the resurgent Sainsbury's.
And we have a return to the normal received wisdom that not all of the big four supermarket operators can succeed at the same time.
Safeway's predicament is all the more surprising given the progress the group made with its Safeway 2000 initiative which set about restructuring the cost base and attracting family shoppers.
What appears to have happened is that while Safeway was achieving great marketing successes with its Harry and Molly advertising and whizzy in- store technology, it was taking its eyes off some of the nuts and bolts of retailing such as stock availability and the supply chain.
Meanwhile, the wooing of high-spending family shoppers seems to have deterred secondary customers.
The proposed three-point, three-year recovery plan is not all it appears either. The aim to increase sales by pounds 1bn in the next three years works out at just 4 per cent a year, which rivals are achieving anyway; the pounds 60m cost savings are not significantly more than previously announced and, of the pounds 600m promised to shareholders over three years, pounds 400m of that will be the normal dividend anyway.
That leaves shareholders panting for a paltry 10p per share which probably won't arrive until the third year.
With an Asda deal virtually ruled out on competition grounds and no obvious overseas bidder, it could be a long haul.
On full-year forecasts of around pounds 400m, the shares, down 64p to 330p yesterday, trade on a forward multiple of 13.
That is a deserved 26 per cent discount to the market and the shares look no more than a hold.
Join our commenting forum
Join thought-provoking conversations, follow other Independent readers and see their replies
Comments