Grocers limber up for bun fight

THE supermarket chains are set for a battle royal now that the laggards, Sainsbury and Safeway, have got their act together.

Market leader Tesco saw Christmas sales up 4.6% on a like-for-like basis for the seven weeks to 5 January. This was at the bottom end of City expectations and slower than Sainsbury's 5% over 12 weeks. Fourth-ranked Safeway's sales rose 4.1% on a 12-week basis.

However, Sainsbury and Safeway are pushing through refurbishment programmes and now offer stores as welcoming and as efficient as rivals.

Once the programmes end, they may have to rely more on cutting prices to keep growing at these rates.

'Tesco will not sit still for long,' warns Gerrard Group's Amanda Large. Like most analysts, she still rates Tesco, run by the highly regarded Terry Leahy, as the top pick in the sector, seeing it as more protected from competition because much of its growth comes from overseas and from clothes and appliances.

The shares rose 1/4p to 237 1/4p. Like Sainsbury, Safeway and Tesco were hit by falling petrol prices. But, since it is a very low margin business, the fall will not hurt profits. They said they are on track to meet their year-end targets. Safeway was unchanged at 307p, while Sainsbury rose 11p to 375 1/4p.

Minnow Somerfield returned to the black with a first-half pretax profit of £2.5m to November, compared with a loss of £21.7m last year. Christmas sales were up 2.9% for the Somerfield chain and 3.8% for Kwik Save. Somerfield rose 6 3/4p to 97p. Chief executive Alan Smith said: 'It's a turnaround. Up to nine months ago, we were showing negative like-for-like sales.'