Somerfield to Buy 114 U.K. Safeway Stores

BRISTOL, England - Somerfield Plc, which operates the Kwik Save and Somerfield grocery chains, has agreed to purchase 114 Safeway stores from William Morrison Supermarkets Plc for 260.2 million pounds (U.S.$478 million) in cash to increase its customer base, according to published reports.

Somerfield will raise 50 million pounds toward the purchase of the Safeway Compact stores, which measure about 15,000 square feet or less, by placing new ordinary shares, the company said in a statement. The 114 outlets will yield sales of 750 million pounds to 800 million pounds, according to Somerfield.

Said c.e.o. Steve Back in the statement: "This acquisition represents an excellent opportunity for Somerfield to grow its estate without a significant increase in gearing and to capitalize on its proven expertise in operating smaller stores."

In addition to 1.2 million additional square feet of retail space, the purchase procures Somerfield a depot in southern England that will permit the grocer to meet regional demand for fresh and chilled foods. The 114 Safeway stores are located across the United Kingdom.

Somerfield is spending 105 million pounds to widen store aisles and include more space for prepared and fresh foods. Additionally, it's stocking more private label items, which cost shoppers less and are more profitable for the retailer. The company has renovated 331 of its stores since it began the refurbishment program. A renovated Somerfield location does around 40 percent more business than an outlet that hasn't been revamped, according to chairman John von Spreckelsen. The renovations are scheduled to wrap up within four years.

Also, Somerfield is shuttering marginally profitable Kwik Save locations while converting others to the Somerfield banner. In Scotland the company has converted 29 of its 51 Kwik Save stores in that country to the Somerfield brand and closed 22 other outlets.

Somerfield is the least profitable of the major British food retailers, according to Bloomberg data, which reports an operating margin, or ratio of operating profit to sales, for the company of 0.64 percent for 2003, vs. 5.8 percent for Tesco Plc, the United Kingdom's No. 1 supermarket chain, and 6.4 percent for William Morrison Supermarkets.
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