Budgens tries a discount format: Move inspired by German shareholder begins test marketing this month

BUDGENS, the supermarket chain, is entering the discount end of the food retailing arena with a new low-price store formula inspired by Rewe Group, its new German shareholder and one of Europe's biggest food retail groups.

The move follows the attack by European operators such as Aldi of Germany and the Danish Netto on the British discount sector. It accompanied full-year results from Budgens showing a 33 per cent increase in pre-tax profits to pounds 6.17m and a return to dividends for the first time in three years with a final of 1p. The shares fell 1p to 43p.

Test marketing of the new format, Penny Market, begins in Cambridge later this month and a further three Budgen stores will be converted by the end of August.

The new name is a translation of the Penny-Markt format, which accounts for more than 1,400 of Rewe's 8,000 stores in Germany, where it has 15 per cent of the market.

Rewe bought a 26.3 per cent stake in Budgens for pounds 23.5m from Sir Ron Brierley's BIL Securities in April. Hans Reischl, Rewe chief executive, joined Budgens as a non-executive director last month.

John von Sprecklesen, chief executive, who introduced Rewe to BIL, said that Penny Market would offer a smaller range than Budgens stores and use fewer staff but prices would be very competitive without compromising quality.

Budgens, with 100 stores, mainly in south-east England and ranging from 3,000 to 18,000 sq ft, has felt the brunt of new superstore building by the big three operators - J Sainsbury, Tesco and Safeway.

New openings in 1992 and planned for this year amount to 1.5 million sq ft, or more than twice Budgens' existing 680,000 sq ft of space.

Budgens' turnover in the year to 25 April fell by 2 per cent to pounds 285m, partly due to price deflation.

Trading margins improved from 2.2 to 2.8 per cent, mainly reflecting the benefits of Budgens' membership last year of a 25-strong central buying consortium and greater efficiency at its central depot in Wellingborough, Northamptonshire.

Mr von Sprecklesen said that attrition from new superstores would continue, but that Budgens' policy of 'neighbourhood' shopping and competitive pricing should offset the pressures.

If Penny Market proved a success, he said the format would be expanded by purchases of new leaseholds rather than conversion of existing Budgen stores.

In turn this would make greater use of the central depot, which is too large to be used effectively by Budgens' existing stores.

Pre-tax profits were depressed by pounds 250,000 of closure costs compared with an pounds 842,000 payment from the sale of Betta Stores the previous year. Interest costs fell by pounds 1m to pounds 1.5m, thanks partly to an equity-raising in August 1991.