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| Challenging
conventional wisdom The strategy which is delivering these results is challenging the conventional wisdom in our industry in several ways. First, our decision to discontinue ABC loyalty card points and reinvest the savings in strong promotions surprised our competitors but has paid off handsomely in helping sustain our sales growth. Second, our focus on deep-cut promotions has directly challenged the orthodox transatlantic view that British consumers want “everyday low prices” and no promotions. In recent months our major competitors have all significantly stepped up their promotional activity, in some cases producing pale imitations of our flyers. Third, we are also demonstrating that, contrary to the opinion of some commentators, a diverse portfolio of stores can be a source of competitive strength. We now operate four distinct formats – convenience stores, supermarkets, superstores and, as this year progresses, hypermarkets. This strategy, allied to the rapid refitting of all our stores over the next two years, enables us to respond more effectively to the local markets in which we trade. By the end of the current year, just over one third of our retail space will have been refitted in these new concepts. Our people Our people have responded well to Carlos’s leadership. Morale and motivation are higher now than for many years. Store managers have much more authority to run their stores as individual businesses. Enhanced rewards for good performance are now in place. It is particularly encouraging that during the year talented people from other leading retailers have joined us in senior positions. Our suppliers We are very grateful for the continuing support of our suppliers. Achieving our goal of being best at availability, coupled with the supply chain challenges of our aggressive promotional strategy, have tested and strengthened our relationships with our suppliers. They are sharing the benefits of our success in the market place and we look forward to further progress this year. Our industry Last October the Competition Commission concluded that the big five supermarkets operate competitively and neither make excessive profits nor overcharge customers. They also identified a number of trading practices which they felt bore rather heavily on some small suppliers. We have therefore negotiated a legally-binding Code of Practice with the OFT which is intended to put the relationship between the top five retailers and their suppliers on a more transparent and predictable footing. The Code will not, however, be binding on other, smaller food retailers and will not apply to the processors and packers who, unlike us, have direct commercial relations with farmers and small growers. We believe these are serious flaws which are likely to reduce its effectiveness. The outbreak of Foot and Mouth disease which began in late February has placed the relationship between farmers and retailers under further strain. We are working hard to try to resolve any misunderstandings and to bring everyone who works in the food supply chain together. The bulk of the food we sell in our stores is sourced here in the UK. We are and will remain the strongest supporters of the British farmer – a level of commitment recognised by one national newspaper which named Safeway the most farmer-friendly supermarket of the year. In the aftermath of the Foot and Mouth crisis there will no doubt be a protracted debate on the future relationship between farmers, processors, retailers, regulators and consumers. This may well lead to further changes in the organisation and management of the food supply chain. We intend to play a full and active part in the debate and in shaping whatever changes emerge.  David Webster |
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