Argyll sale of 151 stores to Spar nets pounds 20m: Supermarket group takes step towards stemming losses at Lo-Cost chain

ARGYLL, owner of the Safeway supermarket chain, has taken a step towards solving the problem of its poorly performing Lo-Cost chain with the sale of the smaller stores to a consortium of Spar wholesalers.

A sale of the chain has been expected since May, when Argyll said it was conducting a fundamental review of the business following disappointing results. But some analysts were disappointed that only half the stores had been sold and the shares were marked down 8.5p to 306.5p.

The sale includes 123 Lo-Cost stores, with an average size of 2,100 sq ft, and 28 Presto stores.

Argyll had intended to keep all the Presto stores - the branding on Argyll's smaller supermarkets - but Colin Smith, chief executive, said: 'There were a number of small stores in the North-east which fitted with this deal and it made sense to tidy them up.'

Spar is paying pounds 19.7m for the stores, made up of pounds 10.7m for fixtures and fittings and goodwill, as well as 'at least pounds 9m' which will be realised from property transactions.

The stores have a book value of pounds 12.7m, giving Argyll a profit of about pounds 7m on the deal, and have annual sales of about pounds 150m.

The disposal will leave Argyll with 144 of its larger stores. The group said a review of their future was continuing.

Mr Smith would not comment on whether these would be sold, closed or refurbished, nor would he be drawn on speculation that the group had been talking to Kwik Save, the discount retailer.

Although Spar is buying half the stores, they account for only a third of the chain's pounds 450m sales in the year to 2 April. Profits were not disclosed, but Lo-Cost was responsible for the pounds 10m fall in profits from other food activities - which include Presto - to pounds 41m last year.

Argyll blamed growing competition among discount retailers.

'We think this is a good deal for us,' Mr Smith said. 'Because of their small size, the stores did not form part of our future strategy and there are not many buyers who want as many as this in one parcel.'

The purchasing consortium includes five of Britain's seven Spar wholesalers: AF Blakemore, which operates in Wales and the Midlands, is taking 62, Alfred Jones 14, Appleby Westward eight, Capper & Co 29 and James Hall 38.

Spar will keep all 1,750 staff employed at the stores, although it said that a limited number of shops might be sold on to independent traders.

Peter Blakemore, Spar chairman and managing director of AF Blakemore, said the deal would significantly strengthen Spar's presence in the market.

'Most important, the additional turnover will give further impetus to our buying power with suppliers to the benefit of all Spar stores.'

The wholesaler already owns some shops although most of the 2,200 Spar chain is owned by independent retailers who pay a levy to use the Spar brand and benefit from its central buying. The acquisition will add 12.5 per cent to its annual turnover of pounds 1.2bn.