Safeway (UK)

Safeway plc

Safeway logo
Industry	Grocery, General merchandise
Founded	1977
Defunct	24 November 2005
Fate	Taken over
Successor	Wm Morrison Supermarkets
Headquarters	Hayes, Greater London
Key people	David Webster, Non-Executive Chairman, Carlos Criado-Perez, Chief Executive
Parent	Wm Morrison (after 8 March 2004)

A Safeway supermarket in Walworth, South East London, in 2003

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.

History

Early years

The Company was founded as James Gulliver Associates in 1977 by James Gulliver, a former Fine Fare Chief Executive, Alistair Grant, a marketing specialist and David Webster, a merchant banker.

The founders acquired two food businesses, Morgan Edwards, a business owning the Supervalu chain of foodstores, and Louis C. Edwards, a meat business in Manchester, integrated them and then, in 1980, adopted the name Argyll Foods after Gulliver's place of birth.

In 1981 the Company bought Oriel Foods, a food manufacturing and wholesaling business which the founders had briefly owned previously in the 1970's before they sold it to RCA Corporation and which owned Low-Cost Discount Stores.

Presto and other acquisitions

The Company went on to buy Allied Suppliers from Sir James Goldsmith in 1982: this brought with it the Presto, Liptons, Galbraith and Templetons chains. Presto Foodmarkets was the name of a chain of supermarkets established in the north of England and in Scotland in 1977: the name derives from the town in which the first store was opened: Prestonpans.

Also in 1981 the Company made a £91m hostile bid for Linfood Holdings, a wholesaling and retailing group which was substantially bigger than itself and owned Gateway Stores: however the bid was referred to the Monopolies Commission and did not proceed.

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 Presto became Argyll's principal fascia for larger stores and Lo·Cost smaller stores: a new Presto logo was launched and plans made for new Presto regional distribution centres in Bristol, Wakefield, Bathgate and Welwyn Garden City.

Safeway acquisition

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. The acquisition brought with it 133 UK stores of Safeway, Inc. the first of which had been opened in 1962.

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 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 1998 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.

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.

See also

• Morrisons
• Supermarkets in the United Kingdom

External links

• Safeway plc Archive Website
• A store list from May 2003, showing all the branches operated by Safeway before the takeover
• The last annual report to shareholders, as an independent company before the firm takeover speculation, the Safeway plc Annual Report and Accounts 2002
• The Safeway plc Annual Report and Accounts 2003