Safeway (UK): Map

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For the company (later renamed Safeway plc) that bought Safeway UK during the 1980s, see Argyll Foods.

Safeway was a chain of supermarkets and convenience stores in the United Kingdom. It started life as a subsidiary of the American Safeway Inc. before being sold off in 1987.

Safeway was listed on the London Stock Exchange and was once a constituent of the FTSE 100 Index until it was acquired by Wm Morrison Supermarkets in March 2004. Most of its 479 stores were rebranded as Morrisons, with others being sold off. The brand disappeared from the UK on 24 November 2005.

History

Early years

The business was established in 1962 when Safeway Inc. opened its first store in the United Kingdom in Bradford

: it was then known as Safeway Food Stores. By 1987 it had 133 stores around the United Kingdom.

Acquisition by Argyll Foods

In 1987 Safeway Inc. put Safeway Food Stores up for sale. Argyll Foods 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.

Argyll then 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 as, in 1995, many smaller Presto stores were sold to a consortium of Spar retailers.

Over the next few years competitive pressures intensified. Pre-tax profits fell by 13% during the year ended 30 April 1994, prompting a wide-ranging strategic review known as "Safeway 2000", led by the then Chief executive, Colin 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.

In July 1996 Argyll conducted a share buy-back and then renamed itself Safeway plc.

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. 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.

David Webster, who had taken over as chairman in 1997 after Alistair Grant's retirement, decided to open merger talks with Asda. These talks were called off after a few weeks following a leak to a Sunday newspaper, and 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's

.

Safeway was the first of the large supermarket groups to introduce a loyalty card, which it launched in 1995 and 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.

"New Safeway"

By the early months of 1999 Safeway was coming under renewed criticism from investors. Its shares had under-performed the food sector 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.

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.

Morrisons takeover

On 9 January 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 23 January Safeway's board dropped its recommendation of the Morrisons offer. Kohlberg Kravis Roberts later dropped its proposal. On 19 March 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 26 September. 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

The acquisition quickly ran into difficulties caused in part by the outgoing management of Safeway changing their accounting systems just six weeks before the transaction was completed. The result was a series of profit warnings being issued by Morrisons, poor financial results and a need to revert to manual systems.

The programme of store conversions from Safeway to Morrisons was the largest of its kind in British retail history, focusing initially on the retained stores which were freehold, over with separate car parks. Within a few weeks, Safeway carrier bags were replaced by those of Morrisons and the new owner's own-brand products began to appear in Safeway stores.

Store 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 Sainsbury's

purchased a further 14, and Tesco

bought 10 in October 2004.

Unlike other operators, most notably Tesco

and Sainsbury's, Morrisons had chosen not to move into the convenience store sector. Further to this policy decision, it was announced in late 2004 that the 114 smaller 'Safeway Compact' stores were to be sold off to rival supermarket chain Somerfield in a two- part deal worth £260.2 million in total.

In Northern Ireland

Morrisons sold Safeway stores to ASDA. This included a store in Bangor

which actually opened after the Morrisons takeover.

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 by November 2006. In all, 72 stores were sold that were neither part of the original Competition Commission ruling or part of the Safeway Compact portfolio.

One of the largest single purchases in 2005 was that of five stores by Waitrose. On 18 July 2006, a further six stores from the 'Rump' format were sold to Waitrose, including the former Safeway store in Hexham

, Northumberland

, which became the most northerly Waitrose branch in England.

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.

Morrisons also sold Safeway's Channel Islands stores, in Guernsey

and Jersey

, to CI Traders where they continue to trade under the Safeways brand name, despite selling products from chains such as Iceland. On the Isle of Man

, the Douglas store was sold to Shoprite and the Ramsey store was sold to the Co-op. The Gibraltar

store was originally marketed for sale, but has now been converted under the 'Rump' format. In November 2006, plans were submitted for the extension and redevelopment of the store in order to introduce the full Morrisons format.

In September 2005 the Company announced the closure of former Safeway depots in Kent, Bristol and Warrington with the loss of 2,500 jobs. The Kent depot has since been sold to upmarket rival Waitrose, whilst Warrington was apparently sold to frozen food rival Iceland. Part of the Bristol depot has been sold off to Gist.

The store conversion process was completed on 24 November 2005 when the last Safeway fascia disappeared from the UK.

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