Lower prices mean better value, actually

It is hard to put your finger on it, but there is something about Richard Baker that is ever so slightly reminiscent of Tony Blair. Like the British premier, the chief executive of Boots has an earnest, quietly spoken way about him. But its the frequency with which he uses the word "actually" in a mildly reproving tone that chimes most with the Labour leader.

The adverb is repeatedly pressed into action in response to suggestions that his strategy for restoring the British retailer to its former glory has come unstuck. The group's most recent trading statement - issued at the end of September - may have shown a 3.3 per cent increase in like for like sales at the core Boots the Chemist business, but many analysts chose instead to dwell on the bigger than expected fall in margins.

Although lower prices are a key part of Baker's strategy for attracting shoppers back to Boots, he had only planned to surrender 1.5 per cent of gross margin in the full year. Last week's figures showed margins down 1.8 per cent at the half way mark, and some investors have taken fright.

So, does the strategy need tweaking? "I think six months into a strategy is extraordinarily soon for people to be passing judgement," he replies.

"I am pretty pleased with what we delivered. At the start of the year we said our range [of sales growth] would be somewhere between 3 and 4 per cent like for like. We did 4.4 in the first quarter and 3.3 in a weather affected second quarter - actually - that's bang on the strategy," he counters.

Boots has achieved an incredible amount in the last six months, he argues, and its forecast should be viewed in that light.

"When you are changing three or four things in a business that should have been changed gently over five years there is more uncertainty and your ability to forecast things is affected," he says.

When Baker was hired from supermarket group Asda 12 months ago he found a company that had "focused its energy on everything but the core business". Money had been spent expanding into dentistry and eyecare as well as over the counter pharmaceuticals such as Clearasil. The core retail business had been starved of investment and was losing out badly to supermarkets and discount drug retailers in the UK.

Baker has cut prices and refocused the business, signalling that it will exit from ancillary activities. The goal is to return Boots to its former glory as a service-orientated retailer offering value for money.

To a certain extent, he wants the company as a whole to be more like the Irish side of the business, which, because of its relative youth, has benefited from high levels of investment and a clear focus.

As a result the Republic of Ireland is Boots's best performing territory, regularly returning double-digit growth. Since establishing itself here eight years ago the company has built up a chain of 34 stores and employs 1,170 people.

No figures are disclosed for the Irish operation - although this is expected to change when it incorporates here later this year - but turnover is put at €200 million.

"This is quite a clean business for us here. It is quite modern in many respects. The Liffey Valley store is one of the best stores we have in our chain...