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The Financial Director interview – Office trolley

A corporate profile in The Times of 9 March 1998 said: “After recentprofits warnings, admission of weakness and abysmal sales figures,analysts shake their heads and reflect that (Safeway’s) shares are notlong for this world.” Later in the piece City analysts rated the chain’sperformance. “Financial record 3/10 … City star rating 3/10 … Futureprospects 5/10,” was the gloomy conclusion.

Three years later, the The Times of 17 May 2001 told a different story:’Today (Safeway) is transformed. Profits up by nearly a third wererewarded yesterday with a 6% boost to the share price, which has alreadymore than doubled since the dark days a year ago.’

Simon Laffin, Safeway’s group finance director, partly puts this kind ofcoverage down to the company’s sector. “Safeway is a public company -public in the most extreme sense because anyone can visit almost all ourassets. People always take an interest in food retail because everyone isan expert – they all eat food. But you still need to manage the press andCity’s perception of you as a company.”

Recently the public relations exercise has been made easier as Safeway hasposted eight successive quarters of growth and a sustained share pricerecovery to around 350p from a low of 150p in early 2000, culminating inits readmission to the FTSE-100 in December last year. The future includesa £450m store refit programme and a plan to open 40 hypermarkets over thenext few years – all from a chain that had no superstores in the early90s.

Laffin doesn’t shy away from media attention. Whereas most FDs weinterview have had a handful of press mentions, Laffin’s clippings file isan inch thick. He has made powerful friends in the newspapers, mostnotably the City Slickers of the Daily Mirror, who eulogised him on morethan one occasion. After speculation about a potential takeover ofstruggling Safeway by Asda the Slickers wrote (on 13 May 1999): “We knowSafeway finance director Simon Laffin well, and when he tells us no suchproblem exists, we believe him.” We must note Laffin’s relationship withthe infamous Slickers was purely professional.

From Tanzania to accounting for share options
Laffin is unafraid to tackle issues head-on in the press. He has hadletters published in the Financial Times on subjects as wide ranging asmining in Tanzania and accounting for share options. In May 1996, when hehad been group FD at Safeway for only two months, he took then ChancellorKenneth Clarke to task in the papers for blocking pension funds fromclaiming tax credits on share buy-backs.

Laffin stresses the importance of getting your message across, especiallyto an impatient market. “When you have a situation like we did withSafeway in the mid-1990s, the press and some elements of the City are veryunforgiving. We even had an analyst in the retail sector saying marketconditions were so good ‘that any muppet could make money in food retail’.That is disgraceful,” he says.

So does he think more FDs should take a front line stance with the press?”There is a pap answer that says FDs should take responsibility, even ifit is in making sure regulations are sensible. The reality is, of course,that most FDs are horrifically overworked,” he says.

Laffin joined the Safeway board in May 1996, and has been part of analmost unchanged management team ever since. The board even stayedtogether when flamboyant Argentinean Carlos Criado-Perez was hired as COOto shake up the company in August 1999, rising to CEO after threemonths.

“You do occasionally get some feedback from shareholders along the linesof ‘why are the old team still there?'” says Laffin. “I can understandtheir point of view. On the other hand it is this team with new leadershipand ideas that grew profit by 30% last year. We laid down the foundationsfor what is now a very strong FTSE-100 company.”

FTSE pride
The return to the FTSE-100 has additional benefits. As well as theexposure Safeway receives, and the sense of pride instilled in theworkforce, Laffin has the satisfaction of vindicating investors who took agamble on the company’s growth. “When our share price was in the region of£1-£2 we were 30% owned by American value funds which were looking forrecovery,” he says. “They made a lot of money backing us when some UKinstitutions weren’t keen.” Brandes Investment Partners, for example,bought 8.5% of Safeway at around 150p a share in 2000. It sold up in April2001 at 320p.

Safeway’s problem in the 1990s was that it had become a major player inthe retail sector just before overseas chains such as Aldi, Lidl and Nettostarted eating into the UK market. Originally formed as the Argyll Groupin 1977, the company was a relative minnow, operating a chain of Prestostores in the North of England and Scotland. In 1988 US store operatorSafeway Inc handed Argyll the ideal opportunity for expansion. Safeway Inchad a leveraged buy-out and needed to sell the jewel in its internationalcrown, Safeway UK, to raise the necessary cash. Argyll stepped in and paid£680m to acquire the subsidiary.

“Neither Argyll nor Safeway had a single superstore at this point, andsuperstores were becoming the predominant grocery format in the UK. So webecame number four in the market and hit the first division of retailingwithout the necessary portfolio,” says Laffin.

Hey Presto!
Unusually, Safeway converted the acquirers into the acquiree, abandoningthe Presto brand in 1992 and building new Safeway stores. Then thediscount retailers arrived and the supermarket wars began in earnest. “In1993 space was expanding faster than demand, putting pressure on theweaker players. There were also very high returns from superstoreexpansion and that attracted foreign discounters. Tesco hit trouble, Asdanearly went bankrupt and was recapitalised – all of the big players haddifficulties … How do you play the situation where you have nohypermarket, few superstores and have to maintain your position as numberfour in the market?”

As Fleet Street unleashed its dogs of war, Safeway failed to find aresponse. “If the question is, ‘Did we under-perform in the mid-90s?’ thenthe answer is yes,” says Laffin. “But we under-performed because it was adifficult task. Sure, we didn’t find the answer at that time.”

It took Criado-Perez, a former supermarket trolley boy, to turn Safewayround by the art of “doing good retail” as he likes to call it. “WhenCarlos joined in 1999 he called our stores ‘libraries’ – we had a goodproposition, but there were no customers,” says Laffin. So Criado-Perezthrew out popular retail modelling such as category management (the theorythat says that nappies should be located next to beer in a store) anddecided on a back-to-basics approach of low prices, high quality, customerservice and location.

But Carlos’ methods initially worried the management team. “To get peoplein, Carlos embarked on a strategy of unbeatable offers. But where hisstrategy differed from our competitors’ was in the use of local promotionsrather than national. He said that we must distribute flyers throughletter-boxes and we thought he was completely mad,” says Laffin.

Much to Laffin’s initial consternation, and eventual relief, Safeway wentwith the plan. “We were at a low ebb. The share price was down to 150p,well below net asset value, and there were rumours we were going to betaken over. What did we have to lose? We trialed the local promotions foronly about three weeks and then elected to go national. We recruited 5,000leaflet distributors, investing an amount of money that wasn’t far off ourtotal annual profit,” Laffin says. Did that make him nervous? “What do youthink?” he replies.

He looks back on the decision with a shiver – his career was on the lineafter all. But from a value-creation point of view he feels justified. “Wehad to save the company and took an enormous risk. But it is one of thegreat advantages of being a part of a company that has hit rock bottom;you can take really difficult and dangerous decisions. It is inshareholders’ interests to take decisive action,” he says. “Manycompanies, not least in retail, have struggled because they have not gonelow enough to take the really difficult decisions. I think you know whom Iam talking about. And now all food retailers use flyers.”

Laffin’s role on the board has developed alongside Safeway’s renaissance.As the store portfolio increased he did more business strategy andmanaging communications. “I now only spend about 20% of my time onfinance,” he says. Safeway’s numbers are dealt with on a day-to-day basisby operational and corporate finance divisional FDs, Jonathan Davis andSimon Lane. Laffin is mostly concerned with forming, implementing andconveying strategy to the financial community. “I take overallresponsibility for the numbers in the annual report and present theresults. I also look after external communications with our investorrelations director,” he says.

The other 80% of his working day is tied up in property management andstore development – a role he assumed in February 2001 after a successfulfour months away from corporate HQ working as the store manager of hislocal Safeway in Wokingham.

The secondment was a Criado-Perez brainchild that is designed to instil asense of retail awareness in his management team. Laffin was initiallydoubtful of the merits of such a long period away, even though he knewDavis and Lane could keep things running smoothly.

“I went to Carlos and said ‘this idea you have had about me running astore … are you serious?’ But I thought about it, I had been FD for fiveyears, I had been in finance for almost all my career and I saw it as anopportunity to learn about pure retail. How often are you given theopportunity to go away and do something else on full pay?” he says

“Of course there were some doubts that I could pull it off. There isn’t anassumption that because you are a director you have the skills to succeedas a store manager. There is an assumption that you have had an easy lifeand so expectations are low. But half an hour after I walked through thedoor nobody viewed me as a finance director. Problems arose: the younglads came up to me because they had forgotten to bring in their bow ties.I had to go in the back and look for replacements. You are just themanager to them,” says Laffin

Before he joined as manager, the store was growing at 5% year-on-yeargrowth. He initially targeted to raise that to 8%, but achieved 10% -mainly by improving the way stacks of offers were presented at the storeentrance. He also promised to improve growth without damaging profit. “Thearea manager gave me a hard time over it, but we ended up increasingprofit by about 35%,” he says.

His time as store manager has left a lasting impression on Laffin. He isimmensely proud of the look and feel of each store. During the photo-shootfor this interview he took time out to help customers, chat to staff andrearrange the salad bar. “I probably learnt more about pure food retailingin the four months I ran the store than I had in the four previous years,”he says. “If you asked me if I would like to go to Harvard and do anAdvanced Management qualification or run a store, I would run the store.”It was this dedication that won Laffin the CIMA Business Leader of theYear award earlier this year and has reinforced the image of Laffin in thepress as the next Safeway CEO.

But for all that extra training and career advancement you can’tcompletely take the finance out of the director. The one thing that madeLaffin jittery on the secondment was the money. “I was worried most when Iwas on lates and I had to close the cash office down. The complex routinewith the safe made me very nervous,” he says.


Name: Simon Laffin

Age: 41

Qualification: CMA

Salary: £280,000 basic + £164,000 benefits & bonus


1996-: Group FD, Safeway

1995-1996: CFO, Argyll Group

1993-1995: Group financial controller, Presto and Lo-Cost Stores

1990-1993: Group financial planning and control director, Argyll Group

1985-1990: Financial planning, Mars Confectionery

1983-1985: Financial analyst, Rank Xerox (UK)

1981-1983: Graduate trainee, BP Oil (UK)

Biggest challenge: Investing in the right assets in our reformat programmeand making sure they happen exactly as Carlos wants.

Biggest hassle: We have £4bn of assets in use 24×7 and we have the publicin them most of the time.

You can be FD of any company except Safeway … It would have to beCrystal Palace Football Club. I would be happier if we hadn’t lost lastnight.

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