EMBRACING CHANGE

 
PASSION, PEOPLE, PRODUCT

 
PRODUCT AND PRICE

 
BEST AT FRESH

 
BEST AT AVAILABILITY

 
BEST AT CUSTOMER SERVICE

 
THE SAFEWAY BOARD

 
FINANCIAL REVIEW

 
THE ACCOUNTS

• Group profit & loss account
• Reconciliation of movements in shareholders' funds
• Balance sheets
• Cash flow statement
• Reconciliation of net cash flow to movement in net debt
• Analysis of movement in net debt during the year
• General accounting policies
• Notes to the accounts
• Report of the Directors
• Directors' responsibilities
• Report of the auditors
• Shareholder information
• Five year retail statistical summary
• Five year financial summary

OUR STORES

Our vision is to be the first choice food retailer. We are passionate about the way we deliver great value, best fresh food, customer care and availability

I joined Safeway because I see food retailing in the UK as a market where there are still great opportunities to compete successfully and one in which our company has plenty of scope to build a more profitable, sales-driven business. The sales growth we achieved in the second half of the year shows what we can do.

Our average sales per square foot, however, is still too low. As a result, we have much more scope than our major competitors to increase our sales without investing heavily in new and increasingly expensive retail property.

Driving sales: short term
It was obvious to me, when I took up my new role, that we had to attract more clients into our stores. That's why we quickly introduced our 'Best Deals Ever' - deep cuts in the price of selected, high volume lines, backed by strong point of sale and a big investment in extra stock so that our supply chain could support the extra sales.

Carlos Criado-Perez talks to Sarah Cunningham, formerly Retail correspondent of The Times about the knowledge of retailing abroad he brings to Safeway He has worked in the retail industry in ten diff e rent countries on three continents over the past quarter century. He speaks six languages and, in his spare time, writes poetry and runs marathons. This is all well and good, you may be thinking, but what can he do for Safeway? Carlos, appointed Chief Executive in November, believes that he can do an awful lot, and quickly. "I have a great knowledge of retail. Every market you work in adds something else. And because I have seen so much I often know what will happen next. I can see opportunities." In British food retailing, he thinks, there has been too much looking inwards; not enough looking around for new ideas. "Poor presentation of fresh food is one example. UK supermarkets have lost a lot of ground in this," he says. Carlos' vision A trip to the Safeway store at Camden in north London shows that, by this company at least, remedial action is a l ready being taken. As shoppers walk in they see an abundance of fresh fru i t and vegetables, beautifully presented. Further into the store and there are piles of freshly-baked bread and cakes. Turn the corner and there are the special offers, such as jars of instant coffee at nearly half price. This is exactly what Carlos wants. What he does not want is to see fresh products like bread and lettuces covered in plastic wrapping: "Part of the lack of communication we have had with clients comes from a lack of knowledge of the products." All staff are being retrained so that they know all about hams, cheeses, breads; everything, indeed, that is sold, so that they can pass on their knowledge to clients. Re-focusing the company on products, on local 'guerilla warfare' price campaigns and on better customer service, has clearly been a lot of fun for Carlos, as well as hard work. "It is a wonderful company for me. What was getting us down is easy-peasy stuff if you a re a bit of a retailer. It wasn't that we had huge debts or stores in the wro n g places. We were just not doing attractive retailing." Not everyone believes that turning the company's fortunes around is 'easy peasy'. But Carlos believes he will be able to win over the sceptics. Trolley pushing to Wal-Mart Born into a comfortable middle-class home in Buenos Aires, Argentina, life became very tough for Carlos when his p a rents split up and he moved with his mother to Spain. Although he had been studying civil engineering at university in A rgentina, now he took jobs pushing supermarket trolleys by day and washing up in a bar by night. The day job was the one he stuck with, and within a year he was managing a store . He went on to work for SHV Makro , the Dutch cash and carry group, in - among other places - Portugal, Taiwan (where he learned Mandarin) and Brazil. Then, in 1997, he joined Wal - Mart in the US as Chief Operating Officer of their international division. He worked there 14 months and, he says, he learned a g reat deal - including not to be too in awe of the company, the largest retailer in the world and now the owner of Asda, a major rival of Safeway. Competitors The current fight between Tesco and Asda to offer the most convincing 'everyday low prices' is a fight which he believes neither can win, because you have to be much more dominant than either of these two retailers in order to get suppliers to give you the sort of discounts that make it pro fitable. At Safeway he has already been impressed by the staff: "It humbles me talking to our people in the stores. They'll make any sacrifice for the company if they are taken care of," he says. "British people a re very talented but very process-driven. I'm creative and can push. And here if you push, things do happen."

But it was also clear to me that we had to deliver these deals in a way which both motivated our store managers and their teams and made it difficult for competitors to respond. Our solution was to group our stores and run different sets of promotions in different stores for a limited period. We also gave each store the resources and the incentive to communicate these offers direct to their clients by distributing promotional leaflets to their homes. As a result, we have redirected millions of pounds from national advertising to local marketing.

Our deals have increased the number of clients in our stores in the last few months by 750,000, or 8%. Many of them initially came for the deals, but more and more are now buying other, non-discounted products and doing more of their weekly shopping with us. This is what is really driving our sales growth.

Driving sales: longer term
Moving from short-term tactics to our longer-term strategy, the goal of turning new clients into loyal supporters means engaging them in our offer, developing a dialogue with them, reacting quickly to what they tell us and never letting them down on the basics of retailing. None of this relies on the scale of our operations. We are smaller than our major competitors, so we are leveraging those skills and assets which can drive sales and profits independently of our size. Our vision is to be the first choice for those customers who have the opportunity to shop locally in a Safeway store. To achieve this we will:

• Focus on product and price, by which I mean continue to make deep price cuts on selected products, communicating a powerful value message locally and attracting more clients into our stores.
• Be best at fresh, because the fresh product offer is that part of the range where we can be truly distinctive. So how we merchandise the range and how our clients react to it are really important. We are now rapidly rolling out a new style of merchandising produce and the impact on sales has been very positive.
• Be best at availability, because there's no point in having a top class product range if you can't keep your shelves full. We have a lot to do before we can say we are the best for availability but since the Autumn of 1999 we have consistently achieved on-shelf availability levels of around 96% every week. We are now improving on this performance.
• Be best at customer service, which has always been a Safeway strength but needs constant reinforcement. I want our service to be extra special and that will only happen if our people are really motivated to deliver it. So we are putting more investment into training and rewarding our people, especially in our stores.

This year we are totally focused on achieving these four goals. Together they represent an offer which will continue to draw in new clients and encourage them to spend more once they are in our stores.

Success through our people
While our deals and all the other operational improvements we've made over the past few months have got our sales moving, building sustainable advantage over our competitors can only be done through Safeway people. We are creating a business culture in which our people:

• Are passionate about our products, our stores and everything we do.
• Have an unbreakable will to compete.
• Have the skills, knowledge and resources to do their best, every day.

We have put our stores firmly at the centre of our business. Our store managers now have more authority to fine tune their product range and their pricing to suit their clients. We are also giving them more information about the performance of their stores, for example in the form of a daily profit and loss account. Their main focus is now on sales and how they can attract more clients into their stores, not - as in the past - on cost control. Decentralising authority to area teams and stores has enabled us to reduce our central cost base by around 400 jobs.

The Operations Board Day-to-day operational management is conducted by the Safeway Operations Board. The members are: Carlos Criado-Perez, Chief Executive Lawrence Christensen, Supply Director Jack Sinclair, Trading Director Fiona Bailey, Trading Director Jim Maclachlan, Stores Director Jonathan Davies, Stores Finance Director Jim White, Human Resources Director Roger Ramsden, who is spending a year training as a Store Manager at our High Wycombe store and on secondment to Supply Chain and Logistics. The Operations Board meets weekly and is fully responsible for planning and implementing the Company's strategy, together with the day-to-day management of the business.

Despite all these changes and the increased pressures on many people which our sales growth has generated, we are successfully creating a new culture in our main office at Hayes. We now talk more openly and freely to each other about our successes and people are much better informed about how the business is performing. Our vision is to be a company where everyone feels they can do something personally to bring in more clients and create more sales. We will then be the kind of business where every o n e gets a 'buzz' from what they do, where talented people want to work and more and more people choose to shop.

This is our vision and I am delighted by the progress we have made towards turning it into reality. Over the past few months our people have revealed a truly impressive capacity to take on new responsibilities and stretch themselves to the limit. I would like to say 'thank you' to everyone in our company for achieving so much so quickly.

Carlos Criado-Perez
24 May 2000