The UK's biggest supermarkets are currently engaged in vicious price wars, like their counterparts across Europe, in a bid to increase or maintain market share. This has put price pressure on theirfood suppliers, who are also being squeezed by rising costs for raw material, petrol and packaging.
A survey report by research group TNS found that Morrison had its market share fall to 11.8 per cent from 14.2 per cent over the year to April 2005 and remains in fourth place among UK's "BigFour" chains. The survey found Tescos' share jumped to 29.8 per cent from 27.6 per cent during the same period. Asda market share fell to 16.5 per cent from 16.7 per cent while Sainsbury's marketshare rose to 15.8 per cent compared to 15.4 per cent.
Morrisons is not only feeling the competitive pain but has also acknowledged the strain on the company from digesting its £3.35bn(€5bn) acquisition of Safeway last year. In June the company was reportedly on the hunt for a new chief executive, after it issued its fifth warning about profits being affected.
The uncertainty in the retail market is a factor food processors will have to consider in marketing their brands and selling their products.
For Safeway the purchase from Morrisons of the the eight stores gives the company a chance to boost sales and get more market penetration in potentially lucrative downtowns.
Eight of the stores are located in the South of England and one in Scotland. The stores have an average size of around 20,000 sq ft. Sainsbury's will gain 100,000 new customers and 1,220 staff fromthe purchase, said Safeway's chief executive Justin King.
"They will provide an opportunity to strengthen our market position in town centre locations and deliver future growth," he stated in an announcement about the proposed purchase,which has to get regulatory approval from the Office of Fair Trading (OFT).
The eight stories were valued at about £16.8m, Sainsbury's stated. The company had a group turnover of £16,573m in 2004, a fall of eightper cent from the previous year. Sales per sq. ft have fallen to £16.38 per week during the current year from £16.66 in 2004 and £17.54 in 2003.
Turnover from continuing operations was £16,364m, a gain of five per cent over the previous financial year.
Last year, Sainsbury's acquired 14 stores from Morrisons, 13 of which were Safeway branded stores and one was a Morrisons store. The eight new disposals are the latest in a string. Morrisons alsosold 115 Safeway stores to Somerfield earlier this year. Last week Morrisons announced the sale of five outlets to Waitrose.
For Morrisons the disposals are a means of removing former Safeway stores management believes can not successfully carry the Morrisons brand.
A warning about profits in June, issued as a "clarification", forecast the company would make a profit anywhere from £50m (€75m) to £150m (€225m) in the financial year to 30 January2006. The figure is before tax, exceptionals and goodwill are calculated.
Despite the turnover boost from the acquisition, this would be a significant fall from the annual profit of £380m (€569m) reported for the financial year ended 30 January 2005. The profit fallalso reflects Morrisons' sale of 181 stores last year.
KPMG is continuing to review the group's financial forecasts, management reported in an update on 27 July.
The group sales were £6.363bn for the six month period ended 24 July. When changes in accounting are excluded, sales decreased by 7.4 per cent reflecting primarily the sale of 181 stores over thepast year.
The company reported total like-for-like sales for continuing business for the half year increased by five per cent. When petrol sales are excluded from the picture, sales rose by 2.6 per cent. Thecompany has positioned itself as one of the lowest priced pumper of petrol in the UK.
Stores converted to Morrisons from Safeway increased sales by 11.6 per cent or by 10.9 per cent excluding fuel, indicating more positive news for the acquisition process. Customer numbers increasedby 23.2 per cent after stores are converted, the company stated.
Safeway stores awaiting conversion had a like-for-like sales increase of 3.9 per cent, or 3.4 per cent excluding fuel.
At the half-year end 148 former Safeway stores had been converted to Morrisons and another 280 were in the process of conversion. The company said it remained on track to complete the acceleratedconversion process by late November 2005.
Morrisons will then have 360 branded stores across the UK at the end of the process. The company's management then plans to focus on generating more revenues over the next two years, Morrisons saidin a statement.
The company has so far opened two new stores this year and plans to open another five. In total the company will have opened five new stores in Scotland and two in southern England.
In other news the UK's Advertising Standards Authority has orders Asda to stop claiming to be the cheapest supermarket in the UK after rival Tesco complained.