With his radical overhaul of Somerfield finally bearing fruit and a multibillion-pound sale in the pipeline, Paul Mason is on a high. James Thompson finds out why things are looking up for the grocer

Paul Mason was in a jovial mood last week when he took Retail Week to visit two Somerfield stores. Inside one of Somerfield’s petrol station convenience shops in Shoreditch, East London, the 900-store chain’s chief executive picked up a pie and joked that he likes to tuck into them while watching his beloved Sunderland play.

There are plenty of other reasons why Mason was feeling particularly chipper. After almost two years at the helm at Somerfield, it is in much ruder health than it was when he took over. The convenience store chain enjoyed a like-for-like sales rise of 6.7 per cent over the difficult Christmas trading period, for the three weeks to January 5.

And Mason could pocket a small fortune if the auction of Somerfield, which investment bank Citi is conducting, leads to a sale of the private equity-owned business. Last week, it emerged that two of the big four grocers have “expressed an interest” in bidding for all, or part, of Somerfield, although a trade sale is unlikely during the Competition Commission’s inquiry that will end by May 8.

Mason declined to answer any questions about a potential bid, but he waxed lyrical about the improvements made to Somerfield’s operations. So how has Mason turned the grocer around and what is the likelihood of it being sold?

Since joining in March 2006, Mason has conducted radical surgery on Somerfield’s logistics, IT, stores, branding, product offer and pricing structure. The decision to outsource most of its IT to Indian supplier TCS in 2006 was arguably the most radical move, but the most visible difference is at its stores.

While some of the grocer’s shops still look tired and in need of refurbishment, many have been transformed in the past two years. For example, as recent as the summer of 2005, a visit to Somerfield’s Old Street store in East London – the second store that Mason visited with Retail Week – was an awful, blood pressure-inducing experience.

Now, Somerfield has transformed this and other stores’ fresh and ambient food offer and added food-to-go counters and coffee bars, as well as electronic queue-callers at the checkouts. Mason, who wastes no time in shaking the hands of staff and using his northeast charm on them, is particularly pleased with the performance of Somerfield’s front-of-store convenience offer. The offer, which comprises confectionery, bakery goods, crisps, sandwiches and chilled drinks, is being rolled out across its estate following “an encouraging uplift” in sales, says Mason.

The changes to Somerfield’s petrol forecourt portfolio have also been radical. For its financial year to the end of April, Somerfield has spent£25 million knocking down and rebuilding 60 forecourts as larger convenience stores. This is in addition to the£50 million it spent this financial year on refits, remodels, infrastructure and rebranding 180 stores. “We plan to increase the size of the store investment programme next year,” says Mason.

Mason says Somerfield still lags behind Tesco in terms of its product prices, but it has narrowed the gap by between 2 and 3 per cent, although he will not disclose what the gap is presently. He also concedes that Somerfield’s on-shelf availability is about 4 per cent “behind the best in the industry”, although he stresses it has improved substantially since early 2006.

Overall, Mason is bullish about Somerfield’s growth prospects, particularly for its smaller stores of between 2,000 and 7,000 sq ft. He expects Somerfield’s EBITDA for this financial year to be higher than the£227 million it achieved in the year to April 30, 2007. Somerfield also plans to open 250 stores in the next three years that will typically be smaller than 7,000 sq ft.

Many in the industry are highly sceptical about whether any of the big grocers would be willing to pay the mooted£2.5 billion price tag for Somerfield, which would attract the Competition Commission’s attention. Certainly, the fact that only 233 of Somerfield’s 900 stores are freehold – a consequence of its numerous property deals – makes it less attractive. With Tesco’s hands largely tied, one likely scenario is that Asda, Morrisons and Sainsbury’s, together with Waitrose, the Co-operative Group and Marks & Spencer, will want to take packages of stores, but not the entire chain.

However, there is little doubt that Mason and his team, which includes group strategy director Oliver Meakin, retail director John Cleland and trading and marketing director Colin Smith, have resurrected a sickly patient that was still hampered by the terminal illness of Kwik Save in December 2005. “Two years after taking the business private, much of the heavy lifting is over and this year we are starting to grow the business,” says Mason.

Top of the chain
March 2006-present: chief executive, Somerfield
2003-06: European president, Levi Strauss
2002-03: chief executive, Matalan
2000-01: president and managing director, Asda
1994-2000: numerous senior positions at Asda
Prior to 1994: buying and logistics director, B&Q