SAFEWAY U.K. PLANNING TO BEGIN TEST OF SUPERSTORES

JAMES FALLON

LONDON (FNS) -- Safeway plc, Hayes, England, is taking Wal-Mart on at its own game.

The U.K.'s fourth-largest food retailer has announced plans to open up to 70 hypermarkets to carry a larger selection of both fresh and nonfood products. Safeway will launch a hypermarket test format next year and convert 25 of its existing stores to hypermarkets over the next two years. There is the potential to extend a further 45 thereafter, Carlos Criado-Perez, its chief executive, said.

Safeway's move fits in with the strategy being adopted by its rivals Tesco plc, Cheshunt, England, and Asda, the Leeds-based subsidiary of Wal-Mart. Both companies are expanding their nonfood offering to include more apparel, music, video and consumer electronics products. Asda plans eventually to devote the majority of its sales space to nonfood.

The expanded Safeway stores will be 50,000 square feet or more in size, which still will be smaller than competing Tescos and Asdas. But Criado-Perez -- who formerly worked at Wal-Mart -- said they will represent a new take on the traditional hypermarket with a greater focus on fresh foods and selected lines of consumer electronics, bedding and cookware.

The hypermarkets represent a return to expansion by Safeway, which over the last year has focused on stabilizing its operations. Criado-Perez said capital expenditure next year would rise to about $500 million compared with about $285 million this year. The additional spending will go mainly to store extensions and remodelings, he said.

"Safeway has turned around and we are now laying the foundations for strong growth in our second half and beyond," Criado-Perez said. "This next phase will deliver the new formats, design innovations, ranges and services which, coupled with the four pillars of our strategy are key to achieving Safeway's full potential."

The four pillars of the company's strategy are selected price promotions, fresh foods, product availability and customer service.

The strategy appears to be paying off as Safeway reported a 11.1% rise in profits to $169.1 million on a 7% increase in sales to $6.61 billion for the 28 weeks ending Oct. 14.