Ambitious plans by the Safeway/Fitzwilton joint venture business to establish a chain of superstores in the Republic have been scaled back in the face of fierce competition for sites from arch-rivals Tesco and Sainsbury.

Plans for aggressive expansion in the Republic were indicated a year ago after Safeway entered the Northern Ireland food retailing market through the joint venture with Fitzwilton, owners of the Wellworth chain. Although the number of projected outlets was not disclosed, it was speculated that 20 stores would be established over a five-year period in the Republic's major urban centres of Dublin, Cork, Limerick, Galway and Waterford.

Now, a year later, expansion plans have been scaled back considerably. A spokesman for Safeway said yesterday that entry into the Republic could involve only one or two stores at the outset before any decisions were taken on a national roll-out.

Selection of sites and quality of stores were considered to be more important than establishing a chain of stores and the availability of suitable sites might restrict Safeway's ability to realise its ambitions, he said.

Safeway would have liked to have tendered for the Quarryvale centre in west Dublin but the site was acquired at a premium price in a "done deal" by Tesco earlier this year without being put out to tender. With Sainsbury also seeking to establish a retailing chain in the Republic, the competition facing Safeway is likely to remain intense.

The downsizing of Safeway's expansion plans in the Republic was disclosed in comment yesterday on the group's full-year figures detailing unexpectedly large losses at the Fitzwilton/Safeway joint venture in Northern Ireland. The joint venture incurred a loss of £9 million before interest during the first year of operations due to "higher than expected" initial costs of establishing Safeway in Northern Ireland. "After a difficult hand-over, we now have a solid platform from which to grow," say Safeway directors in their preliminary statement to shareholders. "Our planned programme to build a quality portfolio of new, rebuilt and fully converted Safeway stores from the base of 15 former Wellworth units is now well in hand.

"The first two full conversions to the Safeway format at Coleraine, Co Derry and Newtownards, Co Down, have achieved pleasing sales gain."

A further four stores, including the Westwood and Shore Road stores in Belfast, will be converted during this year. "The first newly-built Safeway store will open in Cookstown, Co Tyrone, this summer with two replacement units in Omagh, Co Tyrone and Downpatrick, Co Down to follow during the second half."

The higher-than-expected costs of entry into the Northern Ireland market contributed to a 13 per cent reduction in the Safeway group's profits to £375 million sterling in the 12 months to the end of March. Although total sales grew by 6 per cent to £7.5 billion after including new stores, like-for-like sales through existing stores increased by 2.2 per cent with volume sales growing by only 1.7 per cent. Earnings per share fell 9 per cent to 24.8p, providing just over one and a half times cover for total dividends unchanged at 14.1p. Safeway shares rose 12p to 376p on market hopes of better results in the current year.