Safeway denies 'excessive' profiting from supplier fees

27 March 2003
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27 March 2003 | Robin Parker

Supermarket chain Safeway has dismissed as irrelevant a claim that it charges suppliers excessively for in-store promotions of their products.

In a study of Safeway's first-half financial accounts, analysts Cheuvreux alleged that supplier funding, which involves suppliers paying for prominent displays of their products, accounts for around 10 per cent of its pre-tax profits.

Cheuvreux said that while charging suppliers for some promotions is common practice among big retailers, it usually accounts for less than 2 per cent of profits, and Safeway should disclose the payments as an "exceptional profit".

Kevin Hawkins, director of communications at Safeway, said the data scrutinised by Cheuvreux was likely to have been leaked from potential bidders for the supermarket chain. They had all been briefed about its performance to help prepare their takeover bids. He branded the figures a "meaningless" misinterpretation of confidential information.

"Cheuvreux said our business model was unsustainable, but how can it be if supplier payments have always been a part of all retailers' profiles? Without access to similar data from our rivals, the analyst has no way of knowing whether we are more dependent on such payments."

It is the latest development in a debate over Safeway's treatment of its suppliers. Last month, it faced allegations from an anonymous supplier that it had breached the Department of Trade and Industry's (DTI) code of practice for supermarkets and suppliers by demanding a six-figure payment a month ahead of its contract renegotiations.

Four of the proposed bids for Safeway's 480 stores were last week referred to the Competition Commission. A decision on the offers - from Sainsbury's, Tesco, Asda and Morrisons - will be sent to the DTI by 12 August.

Wal-Mart, the US owner of Asda, has been in talks with Safeway's major shareholders about buying a significant stake.

But Hawkins maintained that Cheuvreux's interpretation of the data would have little bearing on the outcome of the bidding war, as potential buyers were purely interested in Safeway's assets - its stores.


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