Somerfield, the UK supermarket group, is pleased with its recovery but wants to increase the pace of development for its new store formats to consolidate its position in the convenience store segment.
Underlying operating profits at the company grew from £28.1 million to £30.1 million during the year to 26 April, while like-for-like sales were up 1 per cent. Pre-tax profits before exceptional items were £25.8 million, an underlying growth rate of 24 per cent, the company said.
However, actual turnover was up slightly at £4.7 billion, compared to £4.6 billion in 2002, while actual operating profit was down from £29.4 million to £22.12 million as a result of £8 million in exceptional items related to the group's restructuring.
Somerfield has undergone substantial changes in the last few years, with its untimely acquisition of the Kwik Save discount store and a lack of investment in its stores coming at a time when UK consumers were seeking an increasingly up-market shopping experience.
But the company has taken decisive action to combat its decline, with major revamps for stores under both the Kwik Save and Somerfield fascias already showing signs of increasing sales. The challenge now is to build on this successful turnaround and strengthen the company's position in the convenience store segment.
The company is also experimenting with two new formats under the Somerfield brand - petrol station forecourts and franchise operations.
For the Somerfield fascia, the company plans to focus on stores between 2,000 and 15,000 square feet, with particular emphasis on fresh food and convenience shopping. This will mean the rationalisation of the group's current store portfolio, with the larger outlets downsized with surplus space sub-let to complementary retailers. The company did not say whether it planned to sell any of its larger outlets.
Somerfield's like-for-like sales growth for the year was 0.9 per cent, with store refits, product promotions and a new Savercard trial helping to increase sales. Somerfield's own label products account for around £1.2 billion of sales, while the value-for-money Makes Sense range is being expanded after a successful launch in August. The So Good premium range and Good Intentions healthy eating range, also showed strong performances, driven by product development and promotions.
Investment in refurbishing stores to the new Somerfield format increased significantly, with 59 refits completed in the year, bringing the total to 95. A further 30 stores benefited from lower cost makeovers to improve the environment for customers and staff. A total of 145 stores have now been improved in this way and these will eventually be upgraded to the new format as the refurbishment programme progresses. Eight outlets were closed and one was converted to the Kwik Save fascia. This year, the company plans to refit at least 100 stores at a cost of approximately £70 million.
For the Kwik Save fascia, the company has decided that the ideal trading format is stores ranging from 6,000 to 12,000 square feet, which means that many smaller outlets will have to be expanded to meet this target. Some Kwik Save stores could also be converted to Somerfield where the demographics support the change, the company said.
The adjustment of the larger stores will be managed in the same way as for Somerfield, by downsizing and adding complementary retailers. The target customer base is different from Somerfield, however, so the two fascias will provide distinct retail offers, the company said.
The new store format is brighter, fresher and more colourful than the traditional 'no frills' Kwik Save. Layouts are more logical and easier to shop, with new shelving and refrigeration units and the space devoted to fresh food concessions is greatly increased.
The first 14 refitted Kwik Save stores have already proven to be a success, lifting sales by 13 to 55 per cent since they reopened, and a further 50 outlets should be revamped by December at a cost of around £35 million. Some 33 stores were closed last year.
Kwik Save's like-for-like sales growth for the year was 1.2 per cent, helped by efforts to improve the range of products available to better meet consumer expectations. The company has introduced a 'cheapest-on-display' range under the Simply brand, featuring around 140 product lines, while a Kwik Save own label was launched in March with 1,000 product lines planned by the end of next year. As far as the new trading formats are concerned, the forecourt stores performed particularly well during the year, with sales increases of around 9 per cent in the final quarter alone. The company currently has 18 forecourt sites, and plans to roll out the format across the UK over the next three years.
Like its larger counterparts Tesco and Sainsbury's, Somerfield sees the growth potential in the convenience store sector - of which the forecourt stores are a part - and the company has just begun a pilot scheme with convenience store operator TM Retail. Six Somerfield stores are being converted into convenience outlets trading under a joint Somerfield/Martin's fascia.
Somerfield recently fought off a hostile takeover bid from two retail entrepreneurs and Sainsbury's, but its decision to push into the convenience store segment may make it an even more attractive prospect for one of the major retailers in the future, provided of course that it is successful.