As one of the trio who built Safeway, David Webster witnessed the highs and final lows of the chain. He tells all to Clive Beddall

Ask former Safeway chairman David Webster for his thoughts now that the dust has settled on his company’s takeover by Morrisons, and he will frankly tell you that he feels a “sense of failure”.

But, talking exclusively to The Grocer in his first major interview since the Morrisons- Safeway takeover, the new chairman of the prestigious InterContinental Hotels Group admits there has been plenty in his career to be proud of.

During the eighties, Webster’s quiet, astute style saw him become part of grocery folklore when, with two colleagues, he bought a couple of national multiples, a regional supermarket group, two freezer chains, three symbol group wholesalers, a clutch of manufacturers, a Scotch distiller and even a share in Manchester United.

In truth, he cut his big business teeth when many companies, in every sector of the economy, including food retailing, rose from obscurity to national and international prominence. Thus his seventies and eighties CV reads like a 20-year encyclopaedia of British grocery.

In 1972 he abandoned a career in law and finance to join forces with charismatic fellow Scots James Gulliver and Alistair Grant - respectively the former chief executive and marketing director of the Fine Fare supermarket chain. The three, dubbed the Scottish musketeers, set off in search of fame and fortune.

They first expanded a business called Oriel Foods, which they later sold and then bought back from America’s RCA Corporation, and then formed the Argyll Group, which became Safeway UK.

Webster reveals that the trio’s largest-ever takeover bid could, if it had been successful, have ended his big time food retailing ambitions. In 1985, the trio surprised City pundits when they launched an offer for the Distillers Company, a massive conglomerate that was the big name selling Scotland’s greatest indigenous product - whisky. However, in a blaze of national publicity they were to see their high hopes dashed. The bidding was won by a tiny margin by Guinness after what Webster says was “the dirtiest, ugliest, takeover battle of all time”.

He says he feels more bitter about that defeat now than he did at the time.

“We played the Scottish card and we would have been good for Scotland, because the essence of Distillers was Scotch whisky. The group was being run from London and the Scottish heritage was being largely ignored. The prize would have been
enormous for us. We played to win. We bet high, but we lost. So, at a stroke, losing the Distillers bid destroyed our drinks strategy and we divested that side of the business. If we had been successful we would have left the food trade and our Safeway involvement would never have happened.

“After all, if we had got Distillers we would have been the world’s biggest drinks business, and food would have been seen by us as a distraction.”

Thus, the trio’s failure to win Distillers was a major turning point for Webster and his partners. As a result, their ambitions, via “a highly opportunistic growth strategy”, centred on joining the big three in retail grocery alongside Tesco and Sainsbury.

They did it by merging the Allied Suppliers chain (Presto and Liptons), which they had earlier bought from Sir James Goldsmith and, a year on from the Distillers disappointment, the UK arm of the American Safeway business.

Despite the successful deals that the trio achieved over three decades, Webster cannot hide his disappointment as he reflects on the final Safeway sale. “We achieved our aim, but it didn’t last. One wanted to create an enduring business that lived long beyond one’s own career. And while we came pretty damn close to that, I do have a sense of failure.”

Gulliver and Alistair, later Sir Alistair, Grant died some years ago, with Webster assuming the Safeway chairmanship in 1997. So given that they operated with an almost brotherly solidarity and common purpose for so many years, what would be the Gulliver and Grant view of Safeway’s fate?

“I don’t believe they are looking down on me disapprovingly. They were both realists, as am I. Having said that, during the closing days of the Morrisons deal I felt a profound sense of relief.

“After all, no-one in the Safeway team would have anticipated having to endure the uncertainty of that 14-month period until everything was finally signed.

“Frankly, I expected the Morrisons deal to be cleared immediately by the OFT. There were no real grounds for not clearing it. If someone had told me when we announced the deal in 2003 that it would not be closed until March 2004, I would have had a profound concern about holding the business together through that extended period of uncertainty. However, we did hold it, and I will never forget the support of the teams at Hayes head office and in the stores. They delivered at a time when suppliers’ loyalties moved in a different direction and their support was not as forthcoming as it usually was.

“Combined with pressures from the City, with its price expectations, it was an uncomfortable year and not one that I would ever wish to re-live.”

But Webster does not believe the Morrisons takeover will prove to be the “last great deal in British supermarketing”. He adds:“I do not expect another big deal for a
further period of time. We will need to see what the industry structure is like in two or three years’ time.”

He draws comfort from the fact that the Competition Commission said that Safeway’s problems were structural, and had been so for some years. “Remember, it was said in the Competition Commission inquiry report of 1999 that, on branded products, Tesco was buying 3% cheaper. And clearly, on own label that discount would be much greater. So how can you compete on price in a market where there is such disparity on terms?

“The big lesson I have learned in a mass market is that if you are not there on price you are heading backwards. That becomes more evident by the day, and I would not have said that so strongly 10 years ago.”

He knows that Morrisons saw a situation where, one way or another, Safeway was going to lose its independence and Asda would pick up a lot of Safeway stores. “If Sir Ken Morrison had just sat tight there would have been a restructure of the industry, with our stores going in a number of directions, but with none going to him. Morrisons was finding new stores tougher to find and its key strength was that if it made a move on us it would get under the regulatory net. Morrisons needed to get bigger, given it was being confronted with the scale of Wal-Mart and Tesco. If it had done nothing, it was destined to grow at the rate of eight new stores a year in a marketplace becoming increasingly ugly.

“Buying Safeway was the only way that Morrisons could ever become national. And for Sir Ken to achieve, from a near standing start, a business from Penzance to Inverness in his lifetime is a wonderful achievement.”

Looking back to his early days at the Safeway helm, Webster recalls that the group “put its accelerator down” on freehold store development with the target of opening 25 stores a year. It had bought Allied Suppliers in 1982 but when it picked up the Safeway UK operation from its US parent in 1986, the drive into big time retailing took off.

“We had no choice but to do that, or we would have gone backwards. But in order to get the numbers to work we had to preserve our margin position. In the short term, as the numbers made clear, it was enormously successful. We were growing apace as we converted larger Presto stores to Safeway.

“We opened a lot of high quality new floorspace over the succeeding years. By 1992 or 1993 the pressures were becoming evident and we re-engineered the business through the Safeway 2000 programme in the mid-nineties.

“But, increasingly, we were in a marketplace where price mattered more by the day. Asda’s recovery was proceeding and Tesco muscles were growing.”

Webster reveals that there were three occasions when Safeway nearly got into bed with Asda. The first came in 1991 when the Hayes executives had informal talks with then Asda chief executive John Hardman. The talks came to nothing. But Webster admits: “At that time, the market lacked a large scale price-based operator. And Asda had been just that. It never crossed our minds, but we should have bought into Asda, converted Safeway to Asda and thus, with our scale, reverted to Asda-price. That would have restored one of the strongest brands on the market. Given the parlous condition of Asda at that time, the regulators would have supported that.”

Discussion number two came several years later after the arrival of Archie Norman and Allan Leighton, and the revival of Asda’s fortunes. Shortly after Alistair Grant retired in 1997 and Webster became chairman, talks between them took place again, only for Safeway to withdraw when news of a possible deal was leaked to a Sunday broadsheet.

In February 1998, Asda chief executive Leighton called again and suggested they got together. Webster recalls Asda had the same strategic problems as Safeway. “It was not getting the extra square footage. To grow the business significantly in the long term it needed to be bigger. Its size, relative to Tesco, was not growing.”

Although terms were agreed, the proposal came to nothing and soon after Wal-Mart paid £6.7bn for Asda.

Discussing Wal-Mart’s UK entry, Webster says he is convinced that the Bentonville colossus looked at Tesco and Sainsbury before moving for Asda. And, with a broad smile, he adds: “If I had been advising Wal-Mart I would have said: ‘Look, Tesco management might be unhappy at the prospect of a deal, but the City will snatch your hand off.’ Having said that, I am glad for UK food retailing that did not happen.

“However, I believe Wal-Mart bought Asda in the belief it could follow through with Safeway after a decent interval. It would have liked to have done a deal with us, but the regulatory restrictions were such it could not happen.”

The rest, as they say, is history.
October 1972: David Webster joins former Fine Fare executives James Gulliver and Alistair Grant to seek acquisition opportunities.

1973: The three borrow cash to buy Oriel Foods, which includes a Liverpool edible oil refining business and provisions wholesaler Thomas Robinson. Webster’s contribution is £100,000.

1973: They buy Nottingham-based VG wholesaler AB Gibson, which takes them into delivered and C&C wholesaling.

January 1974: They sell Oriel Foods to the US’s RCA Corporation.

September 1974: They buy Morris and David Jones, the Liverpool-based Mace wholesaler.

1976: Gulliver, Grant and Webster leave Oriel to form the Argyll Group. They are barred from moving into food for up to two years.

1977: The trio buy an old established wine merchants business. They also take over 30% of the Alpine double glazing business. This is followed by the purchase of Dolphin Showers.

April 1978: The trio take control of Morgan Edwards, a loss-making listed Shrewsbury-based Spar wholesaler.

1979: They take management control of Manchester meat processor Louis C Edwards and Sons, whose chairman is also chairman of Manchester United. They buy Yorkshire Biscuits and north west freezer chain Cordon Bleu. They buy 10% of Manchester United for just £300,000, and Gulliver becomes a club director.

1980: Morgan Edwards and Louis C Edwards are merged to create Argyll Foods. The trio buy Amalgamated Distilled Products, which takes them into the drinks business in a big way.

1980: They launch a bid for the Linfood wholesale business that owns several Carrefour stores in the UK and has a strong wholesale base. They withdraw after the bid is referred to Monopolies and Mergers Commission.

1981: They buy Oriel back from RCA Corporation.

January 1982: Argyll buys 67 Pricerites for £3m.

May 1982: They buy Allied Suppliers chain (Presto) from Sir James Goldsmith for £100m. This is the move that takes the trio into big time food retailing, as it has two million square feet of sales area (900 stores, including Liptons and Templetons fascias).

1982: They buy Barton Brands, the Chicago-based bourbon, gin and rum producer.

1983: They move to Hayes.

Nov 1983: Argyll Foods and Amalgamated Distilled Products merged to form Argyll Group.

1984: They buy Amos Hinton, a 60-branch Teesside regional supermarket chain.

1985: They launch an unsuccessful £1.9bn bid for the Distillers Company.

1985: They sell their drinks and food manufacturing interests to concentrate on grocery retailing.

1986: James Gulliver retires from Argyll and Grant assumes chairmanship.

1986: Argyll buys 133-store UK Safeway operation from US parent for £660m in the face of competition from Sainsbury and Tesco.

1987: Integration of Presto into Safeway begins.

1997: Safeway deal talks with Asda end after a national press leak. Webster becomes Safeway chairman.

2004: Safeway sold to Morrisons.