Morrison admits Safeway needs more work

SALES at supermarket group William Morrison jumped over the festive period but the gains were undermined by the loss of business from stores it was forced to sell as a condition of its acquisition of Safeway.

Meanwhile, sales in the remaining Safeway stores that have yet to be rebranded continued to slide. Food sales at the unconverted Safeway outlets dropped 8.1% and non-food sales slumped by almost a third (30.3%).

The figures published this morning by Morrison, Britain's fourth biggest grocery chain, show that while like-for-like sales in its core stores grew substantially ? up 5% when petrol sales are excluded. But over the 49 weeks to 9 January, the chain did not enjoy such a good Christmas.

Overall, like-for-like sales in core Morrison stores were flat in the six weeks to January 9. Food sales were unchanged and non-food sales dropped by 5.1% although small increases in non-food sales and off licence revenues kept the overall figure positive at 4% up on a like-for-like basis.

Morrison quadrupled in size after buying Safeway for £3.2bn last March and the conversion of more Safeway stores remains a priority. Although Morrison's figures are broadly in line with expectations, the company acknowledged that it has work to do to convert more Safeway stores to the Morrison format. The performance of newly converted outlets shows what can be achieved.

Food sales in the converted Safeway shops were up 7% in the six weeks to January 9. In a statement, the company said the figures were satisfying but more work was needed: 'We believe the performance of core Morrison stores is acceptable short term, especially given the tough 2003 comparatives of 9.6% like for like main store growth. The Safeway 2004 store conversion programme completed at the end of November when 56 stores had re-opened as Morrison. We have been encouraged by the increase in sales per square foot since conversion.'

Morrisons has converted 56 of the old Safeway stores and is set to tackle another 180 this year. Chairman Sir Ken Morrison said new stores openings by rivals and some 'cannibalisation' from converted Safeway stores had hit the existing core Morrison outlets' performance.

{1}Tesco publishes a trading update next week, on 18 January, and is expected to show continued strong growth ? despite what the British Retail Consortium today described as the 'worst' Christmas for more than 10 years.

Despite some flat spots in today's statement, Morrison is still likely to have outperformed Sainsbury, where Christmas trading is believed to have been lacklustre. Sainsbury reports on its December trading on Thursday but is expected to show same-store sales down by as much as 0.5% in December, well adrift of Tesco's expected 6% growth.

The big problem for Sainsbury remains its supply chain system. Stores in Central London had bare shelves after more problems last week and the retailer has admitted to some IT-related problems.