View from City Road: Iceland warms to a new idea

FLOGGING food in clothing shops is difficult. Marks & Spencer has the knack of persuading shoppers intent on socks and knickers to stop in the food department for the evening Chicken Kiev. Storehouse-owned BhS had no such luck and has long since axed its food departments.

Now Littlewoods, the privately-owned pools-to-mail order group, has given up the struggle, farming out 48 of its food halls to Iceland Frozen Foods.

Iceland, which these days is closer to a convenience chain than a freezer centre, will take on most of the food staff in the shops. But the food buyers, distribution and back office staff look destined for the sack, though neither side will comment.

Under the five-year deal Iceland will pay a percentage of turnover to Littlewoods. Its 'Iceland at Littlewoods' outlets will have more fresh and chilled products than its typical high street shops.

Iceland, which also announced an acceleration of its store opening programme yesterday, is paying for the refits with a pounds 27.5m placing, which it has also underwritten, at 640p. The shares rose 21p to 668p on the news. Iceland decided against a rights issue as the amount was so small.

The group, which also issued estimates of its results for the year to 2 January, continues to prosper. Sales are up by at least 17 per cent at pounds 1.04bn. Like-for-like sales volumes grew a healthy 8 per cent. Pre-tax profits were not less than pounds 55m, up 19 per cent. A forecast final dividend of 6.9p makes a 10p total, up 18 per cent.

Institutions investing in the placing look well set. Iceland has the buying clout and expertise to exploit the huge footfall in Littlewoods stores better and so boost the modest pounds 80m in food sales at present achieved. With luck it has learnt some of the lessons of digesting a large tract of retail space from the 1988 Bejam acquisition.

Investors, however, have plenty of choice about where to put their cash. Last week saw Asda, Burton, Wessex Water and Stakis ask for money. And more will want to exploit the market's strength to raise much- needed cash ahead of the gilts flood.

Names in the frame include Vickers, Trafalgar House and Lucas. Not all will have as good a story to tell as Iceland, so investors should pick and choose carefully.