Wm Low focuses on its traditional heartlands as retail battle hots up

managing to more than hold its own is Wm Low. ''We are being squeezed

but not squashed,'' said chairman James Millar.

The board feels that strong customer loyalty in its key trading

locations of Scotland and northern England, coupled with the perception

of low prices and quality products, will enable it to grow the business

at a time when overall demand in the market is slack and there is little

or no inflation.

Its results for the year to September 4, 1993, provide some signs of

encouragement for the board in that sales were 6.4% ahead at #447m and

profit before tax was 2.4% better at #21.1m.

The annual dividend was maintained at 8.4p. However, that masked a

tale of two halves with flat sales in the second half and overall

underlying sales growth in existing stores of just 0.5%. A change in

product mix and the opening of more modern larger stores enabled net

margins to be maintained at 4.9%.

Recognising the changing nature of the market given the added

competitive threat posed by discount formats, the board has taken a

strategic decision not to expand the chain south of Loughborough in

England. This means that all stores can be serviced by the existing

distribution network.

Mr Millar said there was a need to sharpen the company's market

identity and that meant focusing on its traditional heartlands which

have a combined population of around 30 million and emphasing the

lower-priced merchandise and fresh food on offer in the stores. At one

stage the company, along with everyone else in the sector, had thought

that it could profitably expand nationwide.

Now Wm Low intends to concentrate on its traditional strength in

Scotland and northern England with around 60,000 net square feet of new

store space planned to open in each of the next few years. By the

year-end there will be 61 stores in the portfolio. Finance director

Harvie Findlay described this as ''a sound basis on which to continue to

expand the business''. This capital expenditure is to be funded from

cashflow. The board recognises the need to keep a close eye on capital

expenditure and gearing which last year was 33%.

During last year, new stores were opened in Montrose, Tayside and

Ilkeston in Derbyshire and a major extension was completed at the

Linlithgow store. In the current year, stores have already been opened

in Campbeltown and Dundee.

Within the next fortnight, a superstore and retail park development in

Coatbridge is due to open. Trading in the three new outlets is said to

have got off to a good start and contracts have been exchanged on the

sale of the retail park to an undisclosed financial institution.

Its own-label products represent around 22% of Low's total sales and

the 75 tertiary lower-priced brands of poorer quality a further 1.25% of

sales. There are no plans to expand these lines. This is in marked

contrast to its larger rival Sainsbury which is keen to increase its

presence in Scotland.

There has been a lot of debate about the threat to the traditional

food retailers from discount formats such as Shoprite, Kwik Save, and

more recently Continental operators such as Aldi.

According to Mr Millar, Low's outlets, particularly in Scotland, have

had to cope with competition from discounters and mainstream operators

for some time. Shoprite, for example, has managed to capture around 8%

of the Scottish grocery market as a result of an aggressive expansion

plan north of the Border. Wm Low, with a 15% share, occupies second

place to Argyll in the Scottish grocery market.

Mr Millar believes that discount formats could eventually take up to

15% of the UK market but he said ''there is no need for any of us to get

gloomy'' given the 85% share of the market which mainstream operators

such as Low will have.

Wm Low has noticed that the presence of a modern large store limits

the impact of the discounters. Currently around 37% of its store

portfolio is less than five years old and by the end of next year this

figure will have risen to 42%.

On balance, Mr Millar said the company is ''in good heart'' while

recognising the competitive challenges facing it in the years ahead.

The City remains concerned about saturation and the threat posed by

discounters and has accordingly downvalued the food retailing sector. Wm

Low, as one of the smaller operators, has not escaped this and yesterday

its shares fell 6p to 154p. This compares with a high point this year of

262p.