FD profile: Simon Laffin

A corporate profile in The Times of 9 March 1998 said: ‘After recent profits warnings, admission of weakness and abysmal sales figures, analysts shake their heads and reflect that [Safeway’s] shares are not long for this world.’ Later in the piece City analysts rated the chain’s performance. ‘Financial record 3/10… City star rating 3/10… Future prospects 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 were rewarded yesterday with a 6% boost to the share price, which has already more than doubled since the dark days a year ago.’

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

Relations with the press
Recently the public relations exercise has been made easier as Safeway has posted eight successive quarters of growth and a sustained share price recovery to around 350p from a low of 150p in early 2000, culminating in its readmission to the FTSE-100 in December last year. The future includes a Pounds 450m store refit programme and a plan to open 40 hypermarkets over the next few years – all from a chain that had no superstores in the early 90s.

Laffin doesn’t shy away from media attention. Whereas most FDs we interview have had a handful of press mentions, Laffin’s clippings file is an inch thick. He has made powerful friends in the newspapers, most notably the City Slickers of the Daily Mirror, who eulogised him on more than one occasion. After speculation about a potential takeover of struggling Safeway by Asda the Slickers wrote (on 13 May 1999): ‘We know Safeway finance director Simon Laffin well, and when he tells us no such problem exists, we believe him.’ We must note Laffin’s relationship with the infamous Slickers was purely professional.

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

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

‘FDs are horribly overworked’
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 if it 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 an almost unchanged management team ever since. The board even stayed together when flamboyant Argentinean Carlos Criado-Perez was hired as COO to shake up the company in August 1999, rising to CEO after three months.

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

The return to the FTSE-100 has additional benefits. As well as the exposure Safeway receives, and the sense of pride instilled in the workforce, Laffin has the satisfaction of vindicating investors who took a gamble on the company’s growth. ‘When our share price was in the region of Pounds 1-2 we were 30% owned by American value funds which were looking for recovery,’ he says. ‘They made a lot of money backing us when some UK institutions weren’t keen.’ Brandes Investment Partners, for example, bought 8.5% of Safeway at around 150p a share in 2000. It sold up in April 2001 at 320p.

Safeway’s problem in the 1990s was that it had become a major player in the retail sector just before overseas chains such as Aldi, Lidl and Netto started eating into the UK market. Originally formed as the Argyll Group in 1977, the company was a relative minnow, operating a chain of Presto stores in the North of England and Scotland.

In 1988 US store operator Safeway Inc handed Argyll the ideal opportunity for expansion. Safeway Inc had a leveraged buy-out and needed to sell the jewel in its international crown, Safeway UK, to raise the necessary cash. Argyll stepped in and paid Pounds 680m to acquire the subsidiary.

Becoming No.4 in the market
‘Neither Argyll nor Safeway had a single superstore at this point, and superstores were becoming the predominant grocery format in the UK. So we became number four in the market and hit the first division of retailing without the necessary portfolio,’ says Laffin.

Unusually, Safeway converted the acquirers into the acquiree, abandoning the Presto brand in 1992 and building new Safeway stores. Then the discount retailers arrived and the supermarket wars began in earnest. ‘In 1993 space was expanding faster than demand, putting pressure on the weaker players. There were also very high returns from superstore expansion and that attracted foreign discounters. Tesco hit trouble, Asda nearly went bankrupt and was recapitalised – all of the big players had difficulties… How do you play the situation where you have no hypermarket, few superstores and have to maintain your position as number four in the market?’

As Fleet Street unleashed its dogs of war, Safeway failed to find a response. ‘If the question is, ‘Did we under-perform in the mid-90s?’ then the answer is yes,’ says Laffin. ‘But we under-performed because it was a difficult task. Sure, we didnåt find the answer at that time.’

Turning Safeway around
It took Criado-Perez, a former supermarket trolley boy, to turn Safeway round by the art of ‘doing good retail’ as he likes to call it. ‘When Carlos joined in 1999 he called our stores ‘libraries’ – we had a good proposition, but there were no customers,’ says Laffin. So Criado-Perez threw out popular retail modelling such as category management (the theory that says that nappies should be located next to beer in a store) and decided on a back-to-basics approach of low prices, high quality, customer service and location.

But Carlos’ methods initially worried the management team. ‘To get people in, Carlos embarked on a strategy of unbeatable offers. But where his strategy differed from our competitors’ was in the use of local promotions rather than national. He said that we must distribute flyers through letter-boxes and we thought he was completely mad,’ says Laffin.

Much to Laffin’s initial consternation, and eventual relief, Safeway went with 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 be taken over. What did we have to lose? We trialed the local promotions for only about three weeks and then elected to go national. We recruited 5,000 leaflet distributors, investing an amount of money that wasn’t far off our total annual profit,’

Laffin says. Did that make him nervous? ‘What do you think?’ he replies.He looks back on the decision with a shiver – his career was on the line after all. But from a value-creation point of view he feels justified. ‘We had to save the company and took an enormous risk. But it is one of the great advantages of being a part of a company that has hit rock bottom; you can take really difficult and dangerous decisions. It is in shareholders’ interests to take decisive action,’ he says. ‘Many companies, not least in retail, have struggled because they have not gone low enough to take the really difficult decisions. I think you know whom I am talking about. And now all food retailers use flyers.’

Safeway’s renaissance
Laffin’s role on the board has developed alongside Safeway’s renaissance. As the store portfolio increased he did more business strategy and managing communications. ‘I now only spend about 20% of my time on finance,’ he says.

Safeway’s numbers are dealt with on a day-to-day basis by operational and corporate finance divisional FDs, Jonathan Davis and Simon Lane. Laffin is mostly concerned with forming, implementing and conveying strategy to the financial community. ‘I take overall responsibility for the numbers in the annual report and present the results. I also look after external communications with our investor relations director,’ he says.

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

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

‘I went to Carlos and said ‘this idea you have had about me running a store… are you serious?’ But I thought about it, I had been FD for five years, I had been in finance for almost all my career and I saw it as an opportunity to learn about pure retail. How often are you given the opportunity 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 an assumption that because you are a director you have the skills to succeed as a store manager. There is an assumption that you have had an easy life and so expectations are low. But half an hour after I walked through the door nobody viewed me as a finance director. Problems arose: the young lads 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 the manager to them,’ says LaffinBefore he joined as manager, the store was growing at 5% year-on-year growth.

He initially targeted to raise that to 8%, but achieved 10% – mainly by improving the way stacks of offers were presented at the store entrance. He also promised to improve growth without damaging profit. ‘The area manager gave me a hard time over it, but we ended up increasing profit by about 35%,’ he says.

His time as store manager has left a lasting impression on Laffin. He is immensely proud of the look and feel of each store. During the photo-shoot for this interview he took time out to help customers, chat to staff and rearrange the salad bar. ‘I probably learnt more about pure food retailing in 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 an Advanced Management qualification or run a store, I would run the store.’ It was this dedication that won Laffin the CIMA Business Leader of the Year award earlier this year and has reinforced the image of Laffin in the press as the next Safeway CEO.

But for all that extra training and career advancement you can’t completely take the finance out of the director. The one thing that made Laffin jittery on the secondment was the money. ‘I was worried most when I was on lates and I had to close the cash office down. The complex routine with the safe made me very nervous,’ he says.

• This article first appeared in Financial Director magazine