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Over the past few months Somerfield, owner of the Somerfield and Kwik Save chains, has undertaken a series of key strategic moves designed to strengthen its existing retail business and signal its entry into the wholesale market. These were kick-started at the beginning of the year with the announcement that, following successful trials with TM Retail, it was setting up a franchise format initially focussing on its Essentials convenience store model.

In March, the company stated that it was further reinforcing its presence in the top-up shopping market with the acquisition of Scottish Mace wholesaler, Aberness Limited. Aberness owns and operates 36 convenience stores (trading as Mace), has franchise arrangements with operators of five other stores, and distributes to a further 130 stores. Subsequently in April, it lost a key account, Morning Noon & Night, trading from 50 stores, when it defected to fellow wholesaler FW Filshill.

Later in March, Somerfield announced that it would be converting two Aberness stores to the Essentials format as part of a store trial. Further evidence that it is building up the wholesale side of the business came this month with the news that it is to trial a wholesale-type service from its stores in Scotland. Existing Somerfield supermarkets will deliver to local businesses, including bed and breakfast operators, village stores and schools. If successful the trial will be rolled out across the rest of the UK.

Scotland has been very much at the forefront of Somefield's strategic initiatives this year with the decision taken in May that it would focus "all of its resources in Scotland on the expansion of the Somerfield brand", resulting in the disappearance of the Kwik Save name from the market. Of the 51 Kwik Save stores trading there, 29 will be converted to Somerfield and 22 will be closed by the end of this calendar year.

Somerfield has also reinforced its presence in Scotland with the acquisition of 11 forecourt sites of which Somerfield will retain and develop five.

With a vast network of 1,300 stores spanning superstores, through to discount outlets and convenience outlets, Somerfield is at great pains to find a sales formula that works across the group. Part of the problem is that it represents an amalgam of around 10 companies, which have been acquired over the past 30 years or so, the largest of which was discounter Kwik Save in 1998. In addition, it has formed a number of partnerships and joint ventures to test various store formats and markets. What it is left with is a diverse array of outlets in various states of repair. The decision to divide the business into two distinct units - Somerfield and Kwik Save - last year seemed the right one at the time, but what has since emerged is a stream of new formats and concepts including Market Fresh, Essentials, Somerfield with Martin's, and Somerfield Progressive, in addition to sub-lets to complementary non-food operators (for larger Somerfields), a new concept Kwik Save store and most recently a move into franchising and now wholesaling.

What this adds up to is a company that is grappling to come to terms with the challenges of a retail market that is increasingly dominated by multiples that are as aggressive and dynamic on the high street as they are out-of-town. Its move into wholesaling and franchising mimics that of Musgrave, a difficult act to follow given that Musgrave has more than 100 years of experience in wholesaling and the voluntary group sector. Although Somerfield's new formats are working well, their numbers are still very small and we have yet to see a real impact on sales. Group like-for-like sales growth over the past year rose by just 1.1%, partly depressed by a fall of 0.1% at Kwik Save, although Somerfield stores recorded a 2% uplift. This trails behind the likes of Tesco, Waitrose, the Co-op (Welcome chain), and Morrisons, although ahead of supermarket operator Iceland with 0.7% sales uplift on a like-for-like basis. Somerfield has a lot of good ideas in the melting pot; its challenge now is to pull them all together and create a strong and viable business that has longevity.
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