EAST BRIDGEWATER, Mass. (FNS) -- Shaw's Supermarkets here is moving ahead on a multifaceted growth strategy following the release of strong operating results. The company cited its aggressive store-opening program and private-label advances as important elements in its 15.4% gain in operating profit for the first half, and provided details on numerous aspects of its overall strategy, including the following:
Private label has now been lifted to 29% of sales following the addition of 350 products in the first half. There are now some 2,850 store-label products and the chain continues to see significant potential to expand these offerings, said Dino Adriano, chairman of Shaw's and a director of J. Sainsbury, London, Shaw's parent company.
In the wake of the opening of its new fresh foods-oriented format in Fairhaven, Mass., in August, the company will now attempt to determine how to extend the concept to parts of Shaw's existing portfolio of stores.
The retailer is ready to continue expansion in Connecticut following its entry into the market at the end of the first half. Shaw's is aiming for market share there in the low double digits.
Shaw's is planning for its first opening in Vermont within a year, following recent approval from municipal planners.
David Sainsbury, chairman of Sainsbury, noted Shaw's same-store sales rose 1.9% in the period but food price inflation was about
the same level so the net effect was for flat comparable-store sales. Adriano said this performance is better than Shaw's competitors in the New England market. Operating income rose to $41.9 million and sales advanced 4.3% to $1.16 billion in the half ended Sept. 24.
"Growth varied depending on the region," Adriano said. "Shaw's grew in the Northern area but not in the South because there was increased competition as a result of Stop & Shop entering the market."
The retailer added four stores in the first six-month period, including a replacement store in Fairhaven, Mass., which is the first of a new generation of larger Shaw's stores, as reported.
The new format stores will average 45,000 square feet, nearly 50% larger than the company's current format, as reported. The Fairhaven store is more than 65,000 square feet, far bigger than the average will be for the new format. The new concept includes more space for perishables and nonfood as well as such extra service areas as a bank, dry cleaner, pharmacy and a food court, Adriano said.
"We believe that is the format of the future," Adriano said. "Going forward, we now will look at the existing portfolio of Shaw's stores to see if we could expand those or, if necessary, backtrack and open replacement stores."
With its entry into Connecticut, Shaw's now has units of 45,000 and 41,000 square feet there. It plans to open two more before Christmas, both with sales areas of about 45,000 square feet, Sainsbury said.
"We believe there is significant potential to expand Shaw's in the Connecticut market," Adriano said. "We could get the chain into the low double-digit numbers in that region, perhaps opening 10 stores there."
Shaw's is also bullish on its eventual entry into Vermont within the next year, Adriano said. While the state has a population of only about 500,000, Adriano believes it represents an important market for Shaw's and eventually could support up to three stores.
"Current success gives us great confidence that Shaw's can continue expanding into new territories," Sainsbury said.
As Shaw's expands in the New England area, Sainsbury's associate company, Giant Food, continues to push northward from its base in the Baltimore-Washington area. Sainsbury's owns 16.7% of Giant, which contributed a profit of $12.64 million (8 million pounds) in the first half. This exceeded the interest costs of financing the investment by $1.58 million (1 million pounds), said Rosemary Thorne, Sainsbury's finance director. She said the two companies are continuing to develop their relationship and learn about each other's businesses.
The improvement in the U.S. market comes as Sainsbury's core U.K. operation is hitting difficulties. The division reported a 3.1% increase in operating profit to $659.65 million (417.5 million pounds) from $639.9 million (405 million pounds) on a 6.2% rise in sales to $8.42 billion (5.33 billion pounds) from $7.93 billion (5.02 billion pounds).
But same-store sales growth was negative and Sainsbury's margins are coming under pressure as it attempts to react to greater competition from Tesco plc and ASDA plc. Same-store sales rose 2.3% in the first half, but food price inflation was 4.5%. Gross operating margins fell 0.2%.
Overall, the group reported a 3.3% increase in after-tax profit to $478.74 million (303 million pounds) on an 11.1% rise in sales to $11.14 billion (7.05 billion pounds). This compares with after-tax profit of $463.57 million (293.4 million pounds) on sales of $10.02 billion (6.35 billion pounds). Earnings per share rose 2.4% to 26.44 cents (16.74 pence) from 25.83 cents (16.35 pence). Currency conversions were made at the rate of $1.58 per pound.
