UK supermarket Safeway has announced better than expected results for fiscal Q1. After recent criticism about its prices from ABN Amro, Safeway has turned around and beaten city forecasts for its quarterly results. But to maintain growth Safeway will need to be careful that consumers see it as offering value for money, despite negative press attention. Its move to carry out a further round of discounting may help out.
The UK grocery retailing sector has had a good spell recently, with Safeway announcing results ahead of expectations for fiscal Q1 this Tuesday, and Tesco revealing a 6.7% rise in like-for-like sales this quarter compared to the same quarter last year. A slowdown in price deflation has been claimed as one of the reasons for this, but the next wave of discounts is just beginning.
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The turnaround in Safeway’s fortunes began with the appointment of Carlos Criado-Perez 18 months ago, who has instigated a new ‘high/low’ promotion strategy that relies on offering deep discounts on certain lines for limited periods of time in specific areas of the country.
This strategy has so far been successful, but Safeway’s competitors have also been involved in severe price-cutting over the past year and a half, and a new wave of price cuts looks set to follow. Safeway itself intends to cut a further GBP120 million from shopping bills by the end of the year, and Tesco recently announced GBP60 million in price cuts on 700 lines.
In an environment where the focus on price is not going away, ABN Amro’s report last week that Safeway’s prices were 12% higher than Tesco’s will not help its cause. Safeway is wise not to rely solely on discounts to bring in bargain-hungry consumers, by improving its retail proposition with its three-year program of store refurbishments and upgraded product range. But price will still remain one of the crucial factors.
The job in maintaining the turnaround will be as tough as the turnaround itself. Safeway will need to ensure not only that it is following a coherent strategy – which it is – but also that consumers feel that its prices are matching those of its competitors. Safeway has been quick to attack ABN Amro’s report. It will need to be similarly decisive in the future to ensure that consumers feel they are getting a good deal across the board, not just on certain goods.
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