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Questions for Carlos – and the answers | |||
 Carlos talks with Marilyn Barlow and Ashley Carroll, part of the produce team at High Wycombe. These are a good set of results but aren’t you concerned that farmers will react badly to the increase in your profits at a time when many of them are facing huge difficulties as a result of Foot and Mouth disease? The growth in our profits has not been driven in any way by the consequences of the Foot and Mouth disease. This disease broke out at the end of February, just over a month before the end of our financial year. Long before then our profits were on track to recover strongly after three consecutive years of decline. The recovery is entirely due to the strategy we have put in place over the last 18 months. Even now, however, despite the increase in our profits our net margin after tax is still only 2.5p in the £. Throughout that time we have supported British agriculture by sourcing as many of our products as possible from farmers and growers in this country. The increase in our fresh food sales volumes – over 30% since October 1999 – has benefited many of our UK suppliers and we are working hard to ensure this growth continues. Aren’t you worried by the fact that competitors are now copying your flyers? Not at all. Anyone who thought they could compete with us just by imitating our flyers must by now have realised their error. The flyers are only one element in our promotional strategy. We rotate our offers every week through separate clusters of stores. This means we in the centre and our store managers have to be very skilful in forecasting, ordering and managing our supply chain. We have only acquired these skills through the experience we have gained over the past 18 months – and we are still learning. The acid test of building customer loyalty is an increase in the value of the Safeway shopping basket. Have you made any progress in this area? Yes – our average basket spend from existing clients has begun to grow and, together with the continued growth in customers, is contributing to our like-for-like sales growth. Sceptics may say that while your sales growth to date has been very impressive, the comparatives will get harder and harder during 2001/2. How do you plan to keep the momentum going? They were saying exactly the same this time last year – “flash in the pan” was a phrase we heard quite a lot. We will continue to achieve good sales growth this year by developing and refining our promotional strategy, by continuing to transform our stores and by making big improvements in both our fresh and non-food ranges. If your competitors are investing more on promotions, aren’t you going to be obliged to go on increasing your own promotional investment just to stand still? No. What matters is not the total amount invested in promotions but how effectively the money is used. Anyone can pump money into national promotions and expensive advertising to no great effect. Also, to be successful, you need to believe that strong promotions are the most powerful way of driving sales. Some of our competitors are basically committed to so-called “everyday low pricing” and are only spending more on promotions in response to what Safeway is doing. Realistically, how many hypermarkets are you going to be able to open in the next few years? Our first hypermarket, at Plymouth, is planned to open in late Autumn. An existing superstore is being almost doubled in size to 52,000 square feet. This will be a dramatically different large store format to anything yet seen in the UK market. Competitive pricing will be combined with strong fresh foods and a non-food offer which will focus on achieving real authority in a few core categories such as seasonal goods and health and beauty. We plan to extend a further five stores into hypermarkets this year and we are hopeful of eventually achieving between 30 and 50 hypermarket extensions from our existing superstore estate. Although your sales volumes are up by just under 20% compared with two years ago, don’t you still have an underlying weakness due to your lack of scale relative to your bigger competitors? When I first joined Safeway, it seemed to me that the main reason why we were failing was that we always tried to tackle bigger, stronger competitors head-on. All experts on military tactics say you should never do this. So the strategy we’ve been pursuing over the past 18 months has focused on competing in ways which don’t depend on scale. None of our four key business goals depend on scale. But they do demand tactical flexibility, speed of decision and, above all, a local focus. These are the skills we have developed, both at the centre and in our stores. When will you regard Safeway as “best at fresh” and what do you still have to do to get there? There are several benchmarks we will use – customer feedback, media coverage and, above all, sales performance. Our fresh sales volumes have increased by over 30% since the Autumn of 1999 – a faster rate of growth than any of our competitors have managed. But we have to keep this going, and this will depend partly on price and availability but also on range and quality. We will be best at fresh when we are the retailer to whom everyone looks for new ideas, for better execution and for top quality fresh food at competitive prices. Our “Fresh to Go” concept shows what we can do – but this is only the beginning. Many companies have launched cultural change programmes over the past few years, but most of them have fallen well short of their goals. How will Safeway succeed where others have failed? I don’t underestimate the challenge, but I am confident we will be successful. I think there are three basic elements to changing a business culture. First, you must have a very clear sense of what you wish to be and the sort of people you need to realise this vision. Second, your people need to feel a strong sense of ownership and involvement – you can’t make them change just by telling them. Third, people need to see that it’s working and that they are benefiting from it. I believe we have all three elements in place in Safeway – but it will take time to get everyone in the business fully on board. You still have a lot to do to deliver your business goals. How will you ensure you have enough people with the right skills and experience to do what needs to be done? One of the first things I did when I joined Safeway was to sort out the key roles at senior level. We followed this up by reorganising the central functions, outsourcing some of them and reducing headcount by 700. Simultaneously, we put more people on the sales floor to give our clients better service. But this isn’t just a numbers game. We’re putting a lot of effort into our training and development programmes and into ensuring that the right people are in the right jobs. It’s also very significant that over the past year we’ve been able to recruit some high quality people from other companies in our industry. Two years ago this would have been impossible. When you joined Safeway, the Company looked to be going downhill. Since then it has been turned around. As you know, however, Safeway is now in that phase of its renaissance when an unwelcome bid could well arrive. How will you remain independent? By continuing to drive our strategy forward and deliver our goals. We’ve had tremendous support from our clients and our shareholders over the last two years and I’m confident that we will continue to please them. We’ve come a long way and we’ve still got a lot more to do, but I am confident that within the next two years we will be number one in our chosen areas of excellence. |
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