Jobs cut in Safeway shake-up

Argyll, the Safeway supermarket group, announced 124 store closures and 4,800 job losses yesterday in a major restructuring intended to take the battle to the market leaders Sainsbury and Tesco. The City responded warmly and Argyll shares finished 18p higher at 319p.

The company is disposing of 104 of its Presto stores and 20 branches of Safeway with the loss of 1,800 jobs by the end of June. Most of the cuts will be compulsory redundancies. A further 3,000 jobs will go as a result of management pruning in the supermarkets. Safeway is removing department managers who run in-store divisions such as bakeries and meat, replacing them with a new structure designed to push more staff out onto the shop floor.

Staff will have to re-apply for other jobs such as customer service managers and replenishment managers. Many of the new positions will be on lower salaries.

Safeway also announced plans to create 7,500 jobs over the next two years, when it will open 34 new stores. The re-organisation involves a pounds 195m re-structuring charge, but Argyll says the changes should yield annual cost savings of pounds 60m, of which pounds 25m will be re-invested in marketing and customer service programmes.

Announcing the changes, Argyll's chairman, Sir Alistair Grant, said: "Under our Safeway 2000 initiative, we are re-inventing ourselves. I want Safeway to be a leader rather than a follower. We are in a better position to come up with new initiatives." He said this was the end of large-scale shop closures and redundancies.

David McCarthy, food retail analyst at BZW, applauded the changes, saying: "The strategic review is under way and now seems to be producing good results. We now want to see the sales per square foot driving forward."

Safeway is targeting the middle-income family shopper and extending a number of new intitiatives. The number of creches will be extended from 14 to 41 and the self-scanning trial is to be extended to another three branches. Dry-cleaning outlets, photo processing labs and coffee shops will be added to more stores.

Safeway has pledged to improve its sales per square foot from the current pounds 12.86 to pounds 15 within three years. This is still below competitors such as Sainsbury's pounds 20 per square foot and Tesco's pounds 17.

After a poor first half of the year, like-for-like sales picked up in the second half to yield a total of 0.7 per cent. However, like-for-like sales in the seven weeks since April have been up five per cent, better than Sainsbury's 2.3 per cent but behind Tesco's recently reported 7 per cent.

The restructuring announcement came as Argyll unveiled pre-tax profits up 3 per cent to pounds 375m, excluding the re-structuring charge. Sales improved by 4 per cent to pounds 6.28bn. The dividend was also increased by 4 per cent to 12p. Analysts are forecasting pre-tax profits of pounds 420-pounds 430m for the current year.

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