Small is beautiful – smaller supermarkets are the key to growth
The emergence of a significant number of new smaller-format grocery stores has succeeded in overhauling the UK marketplace in the past 12 months, introducing more competition than the sector has seen for many years.
That’s the finding of location planning expert CACI’s annual report on the UK grocery market, which has revealed a surprising glimmer of light amid the recession-hit retail sector – the small supermarket.
CACI’s ProVision 2009 data reveals that Morrisons’ assault on the market, through the purchase of 39 ex-Somerfield stores following the Co-Op’s disposal programme, has led Morrisons to boost its presence in the south east and London. These average 10,000 square feet smaller than their usual format and some are as small as 10,000 square feet. Sainsbury’s has followed suit, successfully cracking areas such as the north with 22 store acquisitions averaging 17,000 square feet below the average for the Sainsbury’s estate.
Waitrose is another of the top grocers to have grasped the opportunity to reach beyond its south east heartland, acquiring 14 new stores which average more than 5,000 square feet below its typical store size.
The activity has helped Sainsbury’s to make great strides forward, moving up to take pole position for market share in 13 of the UK’s 121 postcode areas – five more than in 2008. Asda, although following a less aggressive expansion strategy, has nonetheless moved up to number one in 16 areas. By contrast, Tesco has slipped back from being number one in 87 postcode areas in 2008 to 84 today – some 70% of postcode areas.
Paul Langston, Associate Director for Location Strategy, CACI explains:
“For once, things are not all going Tesco’s way. While it remains the UK market leader, it is being challenged on several fronts by the emerging smaller store format. In the past year we have seen an increase in the number of competing fascias in over 25% of the UK’s retail centres, which is very good news for the consumer. Having proven that they can trade smaller stores successfully, Sainsbury’s, Morrisons and Waitrose are likely to pursue this strategy in the coming year – opening up a new front in their battle to claw back ground from Tesco.”
The store acquisitions following Co-Op’s purchase of Somerfield have been central to this year’s changing market, and the smaller multiple grocers have benefited as Tesco are less likely to pass the Competition Commission’s Acquisition tests if they attempt to pick up disposed of stores. CACI data reveals that store acquisitions represented just a third of Tesco’s total increased store numbers between January and October 2009, with the supermarket giant limited to expanding primarily by building new stores due to the Competition Commission’s acquisition rules. Tesco’s expansion strategy will be challenged again if the Government agrees to the Competition Commission’s recommendation to introduce another test, which will apply to new builds and extensions on top of the current rules for acquiring existing stores.
Paul Langston explains: “Whilst CACI have major reservations about the practicalities of implementing this new test, if the Competition Commission’s recommendation is accepted, Tesco will be more affected than their rivals with regard to opening stores over 10,000 square feet and extensions to existing stores*. CACI estimates that a new supermarket would break these new Competition Commission rules in 807 retail centres in the UK; 39% of these would be Tesco, almost as many as Asda, Sainsbury’s and Morrisons combined.”
He concludes: “All of the Big 5 risk failing the competition test somewhere in their heartland. Grocers are also taking advantage of High Street closures to return to town centres in smaller stores. If the multiple grocers want to continue to grow, small supermarkets may be the way forward – much as out-of-town superstores were in the 1990s. For the first time Tesco, the master of multi-format retailing, faces competitors that have proved they can also trade from multiple formats and that are trading with increased confidence after riding out the recession.
