In the UK, the supermarket and superstore market continues to grow. In 2002, retail sales of food through supermarkets and superstores reached an estimated £83.68bn, a growth of 5.1% on the previous year.
The market is composed primarily of major chains, with outlets nationwide. Alongside these are smaller operations with a traditionally regional bias, although most of these chains are currently expanding nationwide. In addition to these are the limited assortment discounters (LADs). In general, these are operated by European firms and offer basic food products aimed at the lower end of the mass market.
In 2002, the threat of a slowdown in consumer spending contributed to a renewal of competition on price. The major companies are also carrying out large-scale store refit programmes, in addition to the expansion of outlet numbers. Smaller-format stores are becoming more frequent, resulting in increased competition with smaller, independent retailers. Supermarkets are expanding further into the convenience market. This is a further means of securing customer loyalty, and comes in a year when customer-loyalty schemes have been rejuvenated.
Wal-Mart’s acquisition of ASDA Group Ltd in 1999 has seen the company’s stores offer a greater range of non-food products — a move that has been followed by Tesco PLC. Most of the major multiples are incorporating rising numbers of non-food lines into their future development plans as a means of competing with Wal-Mart. Larger superstores are increasingly moving away from traditional, basic food lines to include a wider variety of products and services.
As store refit programmes roll out, it is expected that non-food products, and other services, will play an increasingly important role for many of the major supermarket chains. New technology is being implemented across the supply chain to monitor food and increase automation of distribution networks.
Key Note estimates that the value of retail sales of food by supermarkets and superstores will grow by 16% between 2003 and 2007. Sales of non-food items will increase at a much faster rate, becoming a more dominant part of supermarket and superstore sales.
1. Market Definition
This report covers the UK supermarket and superstore market. The definition includes multiple supermarket chains, such as J Sainsbury PLC and Tesco PLC, in addition to the limited assortment discounters (LADs), such as Aldi Stores Ltd and Netto Foodstores Ltd, and regionally-based chains, such as Wm Morrison Supermarkets PLC. The report includes only chains with an annual turnover in excess of £5m.
The coverage of this report has changed since the previous edition to reflect changes in the market. There is a trend for the major supermarket chains in the UK to open dedicated food stores, and stores on petrol forecourts, specialising in `grab-and-go’ food retailing: such stores include Tesco Extra and Marks & Spencer’s Simply Food. These stores are generally no smaller than 2,500 square feet of selling space; however, they can be as small as 1,500 square feet. The definition of `supermarket’ has been amended accordingly.
For the purpose of this report, a supermarket is defined as a self-service grocery store selling food, beverages and other goods, with a selling space of between 1,500 and 12,000 square feet. A large supermarket has a selling space of between 12,000 and 25,000 square feet. Supermarkets are located primarily in town centres, on high streets, or within shopping malls. The past 10 to 15 years have seen a growth in the number of out-of-town branches for UK supermarkets.
A superstore is defined as a retail outlet, specialising in grocery sales (although not exclusively selling foodstuffs), with a selling space of between 25,000 and 50,000 square feet. Outlets with a selling space in excess of 50,000 square feet are usually defined as hypermarkets. Superstores are located primarily out of town, often as part of larger retail complexes, which have extensive car-parking facilities and are usually well served by public transport links. Superstores frequently offer a wide range of non-foodstuffs, including electrical and entertainment goods, clothing and petrol.
While the report is entitled supermarkets and superstores, the majority of the larger players operate both types of retail outlet. The term superstore generally refers to the largest of retail outlets. Therefore, the market is examined in overall terms and can also be divided between non-food sales and food sales.
Rejuvenated Loyalty Schemes
The launch of Nectar, an umbrella loyalty scheme by J Sainsbury PLC with Barclaycard, BP, and Debenhams, has seen loyalty schemes return as a point of competition between supermarket chains. Tesco has entered into new partnerships to boost its own scheme, and Marks & Spencer is trialling a possible future customer loyalty card. These developments are occurring at the same time, but reports suggest that customers rate price above loyalty.
In 2002, the majority of UK supermarket chains initiated refits and rebranding of their store networks. This move is to allow them to incorporate the new trend for smaller-format, convenience food stores within their networks. The larger chains will diversify their outlets to allow the different store formats to complement each other in terms of both geographical location and the product lines offered.
Luxury Convenience Foods
The major supermarket chains in the UK are expanding their ranges of own-brand products to include a wide variety of lines aimed at the upper end of the mass consumer market. These products are particularly important to smaller city-centre stores, and have resulted in increased competition for the retailers that have traditionally catered for this market, such as Waitrose Ltd and Marks & Spencer Food Halls.
Non-Food Product Lines
With the density of supermarket stores in the UK increasing, the major chains are trying to diversify from their core grocery food retailing. Up to 20% of many larger stores are now being dedicated to non-food products, including home-entertainment goods, clothes and pharmacy products.
The Internet is now firmly established as a retail portal in the UK supermarket and superstore market: most of the major UK multiples now operate some form of online retailing. While this medium still only accounts for a small percentage of grocery sales, it is forecast to grow significantly. Current users of Internet-based shopping tend to be young, affluent shoppers in urban areas. However, as the penetration of the Internet and digital TV grows, this demographic is likely to change. Online retailing is likely to appeal to those groups who have traditionally favoured home shopping, including families with children.
Supermarkets and superstores are an important part of the UK retail sector. They account for an important proportion of all food sales, and this proportion has grown steadily since 1998. Over this period, supermarkets have continued to take market share, both by value and by volume, at the expense of smaller retailers.
Supermarkets are becoming increasingly important in the sale of non-food product lines, including over-the-counter pharmaceuticals, clothing, electrical products, music and videos. A number of the major chains are becoming more heavily involved in the sale of financial products, often in partnership with UK banks.
Table 1: Total Retail Supermarket and Superstore Food Sales by Value, (£m at rsp and %), 1998-2002
Supermarket Supermarket Sales as
and Superstore and Superstore a % of
Total Sales Food Sales Retail Sales
1998 194,017 69,256 35.7
1999 200,517 72,141 36.0
2000 207,851 74,450 35.8
2001 221,019 79,644 36.0
2002e 231,187 83,684 36.2
rsp — retail selling prices
e — Key Note estimates
Source: Business Monitor SDM28/Key Note
The UK supermarket industry has some influence on overseas markets. J Sainsbury PLC and Tesco PLC have established operations worldwide, with strong reputations in markets as diverse as the US, Thailand and the Czech Republic. However, since most European countries have their own, established domestic supermarket chains, the more successful overseas expansions have been in emerging markets, such as Central Europe and parts of South-East Asia, where retail markets are still in the process of development.
Financial performance of the major UK supermarket chains is generally comparable to that of overseas competitors. They have expanded successfully globally, and have worldwide influence.
2. Market Size
THE TOTAL MARKET
The supermarket and superstore market remains strong in the UK, with the value of retail food sales experiencing continued growth. However, there is inconsistency in the percentage rate of year-on-year growth. Competition in the market is extremely intense and customers are showing less loyalty to any particular chain. This has resulted in a return to supermarkets’ traditional means of competition — price.
While the food retail sector is one of the last to be affected by economic slowdown, it is evident that price reduction is one of the major strategies employed by the larger supermarket chains. Moreover, the continued expansion of supermarket chains means that many customers are now able to choose from a number of different supermarket chains in their immediate locality. This has led to some more localised price competition, in addition to those reductions and special offers that apply throughout a given chain.
However, price is not the only focus of competition, with the major national chains competing for the lucrative higher end of the consumer market. Waitrose Ltd and Marks and Spencer PLC have traditionally catered for the upper end of the mass consumer market, but are now facing renewed competition from J Sainsbury PLC and Tesco PLC. These companies have developed their own luxury convenience foods to attract shoppers in this market.
The market has grown by an estimated 20.8% since 1998, and continues to grow. This partly reflects an increase in efficiency among the major supermarket chains, with the implementation of new supply and distribution systems, as well as larger, more efficient stores. The move towards higher- profit non-food lines is also an important factor to consider.
Table 2: The Total UK Food in Supermarkets and Superstores by Value at Current Prices (£m at rsp and %), 1998-2002
1998 1999 2000 2001 e2002
Value (£m) 69,256 72,141 74,450 79,644 83,684
% change year-on-year – 4.2 3.2 7.0 5.1
rsp — retail selling prices
e — Key Note estimates
Source: Key Note, based on Business Monitor SDM28
Tesco PLC remains the leading supermarket chain in the UK by market share and consolidated this position in 2001, despite attempts by J Sainsbury PLC to gain ground on its market share. However, these two companies remain the leading players in the UK supermarket and superstores market.
ASDA Group Ltd and Safeway PLC are competing for the position of third-largest multiple, although both stores are considerably smaller by share of market value, than J Sainsbury PLC. These two companies remain popular and their position is not likely to be challenged by the smaller multiple retailers.
Table 3: Selected Leading UK Supermarkets and Superstores by Market Share by Value (%), 2001
Tesco PLC 28
J Sainsbury PLC 21
ASDA Group Ltd 12
Safeway PLC 10
The Big Food Group PLC 6
Somerfield PLC 6
Wm Morrison Supermarkets PLC 5
Marks and Spencer PLC 4
Waitrose Ltd 3
† — does not sum due to rounding
Source: Key Note
By Number of Outlets
Growth in number of outlets continues among most of the major players in the UK supermarket and superstore market.
Somerfield/Kwik Save remains the largest supermarket chain in the UK as far as number of outlets is concerned. Somerfield PLC intends to sell off some of the Kwik Save stores and to rebrand the others under the Somerfield fascia.
Of the larger supermarket and superstore chains, Tesco PLC remains a major player, particularly because its stores are generally larger than average in size. Sainsbury’s traditionally concentrated on larger stores, with a smaller number of outlets overall, although it is now moving towards smaller-format stores.
Marks & Spencer PLC has been adding food-only branches to its chain of stores.
Table 4: Selected Leading UK Supermarkets and Superstores by Number of Outlets, 2001
Somerfield PLC† 1,306
The Big Food Group PLC‡ 760
Tesco PLC 729
Safeway PLC 465
J Sainsbury PLC 463
Marks and Spencer PLC 319
ASDA Group Ltd 245
Budgens Ltd 229
Waitrose Ltd 136
Wm Morrison Supermarkets PLC 117
† — includes Kwik Save and Somerfield outlets
‡ — includes Iceland outlets only
Source: Key Note
3. Industry Background
As the density of supermarket stores in the UK has increased, the major chains have been forced to diversify their product offering. Non-food products have taken an increasingly important part of supermarket retailing, with major supermarket stores now offering clothes, music, entertainment and electrical goods alongside their core food retailing. Accompanied by moves into financial services and Internet provision, the major supermarket chains are aiming to become `one-stop’ shops for a range of customer needs; ASDA Group Ltd has even made an unprecedented move towards the provision of influenza inoculations.
The proliferation of supermarkets located in town-edge and out-of-town locations has resulted in the majority of the UK population being within a mile of a supermarket. Legislation, introduced by the Labour Government after 1997, imposed restrictions on the granting of planning permission for large out-of-town shopping centres. The result has been an expansion of smaller-format stores by many of the UK’s major supermarket chains, providing town-centre and urban stores with specialised product lines. These stores have been accompanied by a recent expansion into railway stations and petrol forecourts. The influence of the UK’s major supermarket chains is expanding beyond its traditional grocery-retailing base.
The increasing competition among the UK’s major supermarket chains has resulted in a change in the traditional patterns of opening hours. Later opening hours and 24-hour opening have become the norm across the sector. Supermarket chains are no longer restricted by legislation, and are able to open at times convenient for the customer. Online shopping allows the customer to shop at any time of day: most of the major players in the UK supermarket and superstore sector are now offering home shopping over the Internet.
NUMBER OF COMPANIES
The supermarket sector is composed of a relatively small number of active companies. In addition to the major national chains, such as Tesco PLC and J Sainsbury PLC, there are a number of smaller, limited assortment discounters (LADs), such as Netto
A small number of independent supermarkets exist, but these would generally be termed convenience stores; they do not have the supply networks or support to rival the major multiples.
While it is not impossible that new chains could enter the UK market, such a move would probably be via mergers and acquisitions, or by the purchase of existing real estate. It is unlikely that new, stand-alone operations would launch on to the UK market.
The British Retail Consortium (BRC) reports that overall employment in the supermarket and superstore market increased throughout 2001, but at a slower rate than in the previous year. Although full-time employment grew at a faster rate than part-time employment, the latter remains most common in supermarkets and superstores.
REGIONAL VARIATIONS IN THE MARKETPLACE
In general, there is little regional variation in the UK supermarket and superstore market. Expansion of the major national multiples continues in both urban and rural areas.
A number of supermarket chains have traditional regional bases, such as Wm Morrison Supermarkets PLC, whose stores are primarily in Lancashire and Yorkshire. However, in recent years, such companies have started to expand across the UK; Waitrose Ltd was traditionally based in the South, but has expanded to areas in the Midlands and Wales. LADs, such as Netto Foodstores Ltd, are expanding from their original north of England base.
In a market where price is a major concern for customers, changes in the distribution networks are aimed at reducing costs. To this end, the major multiple retailers in the UK are implementing new technology and reorganising their distribution networks. This latter change is of particular concern to those retailers with large and geographically diverse chains of supermarkets, especially where many of these stores have longer opening hours.
This drive for efficiency has seen a more centralised approach by many of the larger retailers. J Sainsbury PLC and Tesco PLC are streamlining their networks of distribution centres to allow larger, centralised depots to co-ordinate continuous product replenishment. Each of J Sainsbury PLC’s depots serves at least 70 supermarkets and up to 150 smaller-format stores.
HOW ROBUST IS THE MARKET?
The food and grocery market is typically very robust. Spending on basic groceries tends to be stable, whatever the economic climate. Recent trends have been for supermarkets to diversify their product range, to include more luxury food ranges, and a greater number of non-food product lines aimed at the upper mass market. However, food and groceries remain at the core of these stores’ business, and they continue to be the principal suppliers of basic food commodities to UK consumers.
A number of current issues in UK and EU legislation may have an impact upon the supermarket and superstore market.
Planning restrictions continue to hinder expansion plans by the major UK supermarket chains. Throughout 2002, the UK Government has rejected a number of schemes for building large out-of-town stores. In a response to this, the supermarket chains are refocusing their expansion plans, to increase the number of smaller, urban stores. Given the already high number of large stores, convenience outlets are seen as an area of future expansion and growth.
The UK Government intends to relax licensing laws in 2003, to permit the sale of alcohol 24 hours a day. This legislation would remove the restrictions on sale of alcohol in supermarkets. Given the increasing number of stores opening late in the evening and even 24 hours a day, this relaxation in licensing laws would be useful for the major supermarket chains in the UK.
Legislation to relax sales of pharmacy products in the UK is likely to come into effect in 2003. This would allow supermarkets to sell a greater variety of pharmaceuticals, without the need for in-store concessions. Supermarkets would be able to use their influence and buying power to compete with high-street pharmacies.
The EU is currently debating legislation which, if enacted, will force supermarkets to stop selling everyday products such as milk and bread at below cost price. Wal-Mart withdrew from the German market in 2001, after prosecutions for selling goods below cost price.
KEY TRADE ASSOCIATIONS
British Retail Consortium
Formed in 1992, following the merger of the Retail Consortium and the British Retailers’ Association, the British Retail Consortium (BRC) is the main trade body for the food retail industry in the UK.
In this capacity, the BRC represents more than 90% of companies involved in the UK retail industry, including the major supermarket and superstore chains, in addition to smaller independent retailers.
Institute of Grocery Distribution
The Institute of Grocery Distribution (IGD) is a charitable organisation, which works to provide information and support to its corporate and personal members. It is a source of research, information and education services to the food and grocery industry, both in the UK and internationally.
4. Competitor Analysis
The UK supermarket and superstore market is dominated by major UK companies such as J Sainsbury PLC, Safeway PLC and Tesco PLC, although the US retailer Wal-Mart bought ASDA Group Ltd in 1999. European involvement in the UK market is restricted to the limited assortment discounters (LADs) such as Aldi Stores Ltd and Lidl Ltd. Rather than foreign involvement in the domestic market, the general trend is for UK companies to expand overseas. Tesco PLC has expanded extensively into Central Europe and Asia, and J Sainsbury has interests in the US.
There have been suggestions in recent years that a number of European retailers are keen to expand into the UK market. The main candidates for such expansion would be the French retailer Carrefour and Ahold in the Netherlands. Neither of these has yet forged an alliance with an existing UK retailer or opened its own branches. Continental retailers have successfully expanded worldwide, particularly in Eastern Europe and China, and they may be more inclined to extend their operations to such diverse markets, rather than to penetrate the well-established UK grocery market.
Table 5: Leading Supermarkets and Superstores in the UK by Turnover and Pre-Tax Profit (£m), 2001/2002
Turnover Pre-Tax Profit Year
(£m) (£m) End
Tesco PLC 23,653 1,201 23/02/02
J Sainsbury PLC 17,162 571 30/03/02
ASDA Group Ltd 10,732 496 31/12/01
Safeway PLC 8,560 355 30/03/02
Marks and Spencer PLC 8,135 336 30/03/02
The Big Food Group PLC 5,220 13 31/03/02
Somerfield PLC 4,641 22 27/04/02
Wm Morrison Supermarkets PLC 3,918 243 03/02/02
Waitrose Ltd 2,174 60 26/01/02
Budgens Ltd 445 17 29/04/01
Source: ICC Juniper database
ASDA Group Ltd
ASDA Group Ltd became part of Wal-Mart Stores Incorporated in July 1999, having been originally founded as Associated Dairies in 1965 by a group of Yorkshire farmers. Since the opening of its first store in 1965, ASDA has specialised in bulk selling at low prices. Its policy is to provide `Everyday Low Prices’ (EDLP). The 1970s and 1980s saw expansion from ASDA’s original north of England base into the south of England, and in 1999, the company was acquired by Wal-Mart, the world’s largest retailer.
ASDA currently employs just under 100,000 ‘colleagues’, all of whom are given share in the company free of charge. The company’s Colleague Share Ownership Plan is the largest of its kind in the UK, and a considerable number of these `colleagues’ also have share options in Wal-Mart.
The company’s traditional base is in the north of England: its core customers are young working-class families. ASDA opened five new stores in 2001, and continued to expand in 2002. The company plans to develop larger stores, with selling space of up to 90,000 square feet; the average ASDA outlet has 42,000 square feet of selling space. The company also operates ASDA Fresh stores — smaller-format stores offering fresh produce to local communities.
Current and Future Developments
In 2002, a survey by The Sunday Times voted ASDA Group Ltd as the best place to work in the UK. This is due in part to the extensive share-options scheme offered by Wal-Mart, which saw around 5,000 employees receive a windfall of £2,400 each in May 2002, in addition to the £10.5m shared between 5,500 employees in March.
ASDA stores are cited by Wal-Mart as the reason for an increase beyond expectations in both sales and profit at the parent group for the third quarter of 2002. The success of ASDA stores is explained both by high volume of food sales and an increasingly important quantity of non-food sales. George at ASDA is now the number two retailer by volume of clothing, as measured by Fashiontrak. Sales of home products, toys and entertainment are also strong.
In the US, Wal-Mart has entered into an agreement with Levis to supply a special brand of jeans, `Levis Signature’. This is a response to `grey-market’ trading, and will offer Levis products at prices suitable for Wal-Mart’s principal customer base. It is likely that this brand will be extended to ASDA’s stores in the UK in the future.
For the year ending 31st December 2001, ASDA Group Ltd recorded a turnover of £10.73bn, an increase of 31% on the year ending 1st May 1999. Pre-tax profit increased to £495.5m from a loss of £69.9m in the 36-week period ending 7th January 2000. The company was known as ASDA Group PLC until 23rd November 1999.
The Big Food Group PLC
In May 2000, frozen food retailer Iceland merged with the wholesaler Booker and on 28th February 2002, the Iceland Food Group PLC name was replaced, although both the Iceland and Booker brands will remain. The company now plans to build on its position as an integrated food group. As such, it intends to extend its e-commerce venture by making use of Booker’s warehouse facilities as collection areas for the wider product range: 90% of the UK population are within 15 minutes of the Booker warehouse network.
The company operates around 760 stores nationwide, offering frozen and chilled goods in addition to a variety of fresh produce. Iceland stores initiated the retail of organic foods at prices similar to non-organic produce, and the company continues to offer a range of fresh produce.
Current and Future Developments
In response to a drop in sales in the first half of the 2002/2003 financial year, Iceland stores are to concentrate on providing EDLP. This move comes after the failings of the company’s move to provide organic-only produce in its stores. A concentration on EDLP provision sees a return to this core customer base.
The Big Food Group PLC is refitting its chain of Iceland stores to accommodate four formats: freezer centres with limited fresh or chilled produce, core stores with a balanced mix of products, core-plus stores with additional chilled and fresh ranges, and C-stores which specialise in convenience foods. The company intends to roll out this refit programme to around 150 stores in 2003/2004.
The company has the intention of expanding its influence abroad. Booker already provides products for its Chef’s Larder range, which operates in Spain, the Falkland Islands and other ex-pat communities. The Big Food Group PLC is looking for opportunities to operate, or at least provide products for, stores in Europe and in ex-pat communities worldwide.
For the year ending 31st March 2002, The Big Food Group PLC recorded a turnover of £5.22bn, a 172.2% increase on turnover for the year ending 1st January 2000. Pre-tax profits reached £12.8m, compared with a loss of £121.4m in the 65-week period to 31st March 2001.
Founded in Colchester in 1872, Budgens Ltd offers brand-name and private-label food and grocery items in supermarkets based primarily in southern England. Musgrave, the Republic of Ireland’s largest wholesale food distributor, took a 91.2% stake of Budgens in July 2002 and plans to secure full ownership of the company.
Budgens Ltd abandoned its e-commerce venture, Budgens Direct, in 2000 and intends to develop its franchise programme, which supplies fresh foods and Budgens-brand goods to independent grocers.
In line with its major competitors, Budgens Ltd is increasing its non-grocery lines. They account for around 10% of turnover in a standard Budgens store with an average 4,000 square feet of selling space.
Current and Future Developments
Reflecting a trend across the market, Budgens Ltd entered into an agreement with Anglian Convenience in May 2002 to operate a small-scale convenience and grocery store at Norwich Station. This development would enhance the Budgen’s Local brand — smaller-format stores, which operate in urban areas and complement Budgen’s larger supermarkets. These smaller stores are in addition to an ambitious expansion programme, announced in January 2002, to increase store numbers at a rate of 20 per year.
The company is already an important market player in the provision of organic produce. During 2002, Budgens Ltd extended its product range to include quality convenience foods aimed at the upper end of the mass consumer market, similar to Tesco’s Finest range. This move reflects an attempt to attract lucrative customers away from companies that have traditionally catered for the upper mass market, such as Marks and Spencer and Waitrose.
Budgens Ltd’s turnover increased to £445.3m for the year ending 29th April 2001, from £420.8m in 2000. It recorded a pre-tax profit of £17.2m, an increase on the previous year’s figure of £14.6m.
Marks and Spencer PLC
Marks and Spencer PLC has over 300 stores nationwide, as well as a small number of branches in the Republic of Ireland and Hong Kong. Having sold off most of its overseas operation in order to concentrate on the UK market, the company still operates 141 franchises overseas.
Marks and Spencer has suffered in recent years from over expansion, and the large and sometimes unwieldy operations this involved. The past financial year has seen the company concentrate on its core UK retail market. It has sold its 25-chain Kings Super Market chain in New Jersey, and is closing its UK catalogue business.
Food retailing comprises 42% of the company’s business by share of sales. Marks and Spencer PLC has extended its reach in the UK food retailing market, with the opening of two stand-alone 10,000 square-feet food stores, two 3,000 square-feet stores, and four outlets at railway stations. The company plans to open another 20 Simply Food stores.
Current and Future Developments
As part of its expansion in the UK food retailing market, Marks and Spencer PLC has opened five stand-alone Simply Food stores and four franchises at London railway stations. These stores specialise in `grab-and-go’ food solutions, providing convenience and ready-to-eat food products. The railway stores are run under a franchise agreement with the food services group Compass; Marks and Spencer PLC has entered into an agreement with Compass to open 40 new stores in 2003. The company plans to have more than 100 Simply Food stores operating by 2005.
The company is currently carrying out extensive trials of a new loyalty and credit card in South Wales. The scheme rewards Marks & Spencer credit card users with points for every pound spent on the card. These points can be redeemed against purchases in Marks & Spencer stores. If this trial scheme proves to be successful, then a nationwide extension should be expected.
In a further trial, shoppers at Marks & Spencer stores in the north east of England are using SCOT technology, enabling self-scanning of goods at the checkout. It is the first use of this technology in the UK, and safeguards have been put in place to guard against shoplifting and the sale of alcohol to under-18s. Each item is weighed as it is scanned, and then each filled bag of shopping is weighed, to spot for inconsistencies. When alcohol is scanned, a supervisor is alerted, to ensure that the customer is over 18 years of age. If the trial scheme is successful, the technology will be extended nationwide in 2003.
For the year ending 30th March 2002, Marks and Spencer PLC recorded a turnover of £8.14bn, a slight increase of 0.7% on 2001. The company recorded a pre-tax profit of £335.7m, compared with £145.5m in 2001.
With over 460 stores nationwide, Safeway PLC is the fourth-largest supermarket group in the UK by share of sales. Originally part of the US group Safeway Incorporated, Argyll Group PLC bought the UK arm of Safeway in 1986, and in 1996 rebranded itself and its own chain of Presto supermarkets as Safeway PLC.
The company offers a range of non-food services instore, including dry cleaning, pharmacies and banks (through an alliance with Abbey National). Safeway PLC operates 12 Safeway stores in Northern Ireland, through a joint venture with Fitzwilton PLC.
Current and Future Developments
As a further stage of the revitalisation of Safeway (now referred to in company documents as `New’ Safeway), 2002 saw the implementation of a store remodelling programme. The company’s main, larger-format stores are to retain a balance of catering, fresh foods and groceries, with an increasing number of non-food lines. In addition, the company is developing smaller-format, convenience food stores, alongside larger-format hyperstores, which offer a wide variety of non-food products and services.
Safeway is abandoning a former strategy of offering significant discounts on certain goods. It believes that this attracts `cherry-pickers’ who buy the discounted line, but who do not go on to purchase more profitable products from Safeway stores. The company is now aiming to attract customers from the affluent income groups, and is concentrating on high-margin sales as a way of maintaining growth.
In the year ending 30th March 2002, Safeway PLC recorded a turnover of £8.56bn, a 5% increase on 2001, and an 11.8% increase on the year ending 1st April 2000. Pre-tax profit increased by 12.8% to reach £354.8m in 2002.
J Sainsbury PLC
J Sainsbury PLC operates three store chains in the UK, Sainsbury’s Supermarkets, Savacentre and Sainsbury’s Local, and has an online grocery venture, Sainsbury’s to You. It has sold its Homebase home and garden supply chain, although it retains an 18% stake in the company. Since 1997, the company has also operated Sainsbury’s Bank, in conjunction with the Scottish bank HBOS.
Sainsbury’s Bank has 1.25 million clients with deposits in excess of £2bn and advances of £1bn. In addition, J Sainsbury PLC owns a property development company to develop retail and leisure sites in the UK.
In the US, J Sainsbury PLC owns Shaw’s, the second-largest grocery retailer in New England, with around 185 stores under the Shaw’s and Star Market brands. In 2001, the company bought 19 stores from the bankrupt Grand Union chain, and it plans to open 30 new stores by 2005.
Sainsbury’s Supermarkets forms the largest part of the operation, and is the UK’s oldest major grocery retailer. Established by John James and Mary Ann Sainsbury in 1869 as a small dairy in London’s Drury Lane, the company opened its first supermarkets in the 1960s. The flotation of the J Sainsbury Company in 1973 allowed it the capital to expand, and by the 1990s, the chain had a nationwide presence. The Sainsbury family retains control of around 37% of the company.
The company has 463 Sainsbury’s stores nationwide, and employs around 145,000 staff.
Current and Future Developments
2002 saw the launch of Nectar, a joint customer-loyalty card offered by Barclaycard, BP, Debenhams and Sainsbury’s. It is the largest loyalty scheme in the UK, operated by Loyalty Management UK. Early results have led J Sainsbury PLC to claim that the introduction of the Nectar scheme has resulted in increased turnover for its stores. However, the scheme is still in its infancy and its success or otherwise remains to be judged.
J Sainsbury PLC is currently utilising data from its original loyalty card scheme to reorganise its stores. While trading will continue under all the existing fascias (Supermarkets, Savacentre, Local and City), all stores will be revamped according to one of three core concepts. Main Mission stores will focus on providing for main weekly shopping, with a high number of food product lines, and will appeal mostly to families. 275 of the current stores will become Main Mission stores, with a selling space of between 20,000 and 48,000 square feet. Main Plus stores will be larger, with a selling space of at least 45,000 square feet. The 65 stores in this category will provide a greater variety of food than Sainsbury’s principal competitors, and will dedicate 20% of the selling space to non-food product lines. Mixed Mission stores will comprise the 157 smaller stores in the Sainsbury’s chain with a selling space of between 2,000 and 20,000 square feet. They are mainly small urban and suburban stores that will specialise in `grab-and-go’ shopping.
J Sainsbury PLC has signed a deal with NTL to allow grocery shopping via interactive digital TV. Launched at the beginning of November 2002, this is an extension to J Sainsbury PLC’s existing online service. Customers will be able to place orders by interactive TV, and their groceries will be delivered the next day.
J Sainsbury PLC’s recorded turnover fell slightly in the year ending 30th March 2002, to £17.16bn, compared with £17.24bn in the previous financial year. However, pre-tax profit rose from £437m to £571m in the same period.
Established in Bristol in 1875 as a family grocery store, by 1950 the company was operating self-service stores under the Gateway banner. Following purchases by Linfood Holdings in 1977, and then by Isosceles in 1989, the first store opened under the Somerfield fascia in 1990; by 1994, all Gateway stores had been rebranded as Somerfield.
In 1998, Somerfield merged with Kwik Save, the low-cost supermarket chain. The company had intended to sell the majority of the Kwik Save outlets, and rebrand the others under the Somerfield fascia. However, selling the Kwik Save real estate has proved to be difficult, and Somerfield currently operates two store brands: Somerfield and Kwik Save.
The company operates around 1,300 stores nationwide, with an average selling space of 8,000 square feet. Its stores are mainly in town, with nearly 600 under the Somerfield banner and around 720 operating as Kwik Save.
Current and Future Developments
June 2002 saw Somerfield PLC invest £70m in a new IT structure, which it believes will boost its position in the UK supermarket and superstore market. This investment in point-of-sales (PoS) equipment is aimed at unifying the IT operating systems across the company’s 1,300 stores, under both the Somerfield and Kwik Save fascias. This new system will form the basis for a new customer relationship management (CRM) programme, to be implemented by the middle of 2003.
Somerfield PLC recorded a £4.64bn turnover for the year ending 27th April 2002. The company made a pre-tax profit of £22.2m, compared with a loss of £13.1m in 2001.
Tesco PLC is the market leader in the food and grocery sector by share of sales. The company originated from a market store owned by Jack Cohen in 1919, with the first store opening 10 years later in Edgware. Tesco PLC currently operates around 730 stores nationwide. Built on Jack Cohen’s philosophy of `pile it high and sell it cheap’, Tesco PLC has since abandoned its discount formula, with its down-market image, for a variety of mid-market stores.
With an average selling space of 26,000 square feet in the UK, Tesco stores provide a balance of food and non-food product lines. The company has been successful in attracting customers from the upper end of the convenience food sector, particularly thanks to its finest range of luxury convenience foods. This has contributed to the erosion of Marks & Spencer’s traditional control of this end of the UK grocery market.
The company operates four brands: Tesco Supermarkets, Tesco Express (petrol retailers), Tesco Metro (smaller, urban stores) and Tesco Extra (hypermarkets), in addition to the sector’s leading online retail operations. Tesco Personal Finance — Tesco PLC’s banking arm which is run in conjunction with Royal Bank of Scotland — now has over 2.5 million accounts with a strong Internet presence. In addition to its UK base, the company also operates 76 stores in the Republic of Ireland, 122 stores in Central Europe and 52 stores in Asia, with plans to open a further 46 stores in Europe and Asia in the coming financial year.
Current and Future Developments
In October 2002, as part of its development of smaller, convenience stores (under the Tesco Express fascia), Tesco PLC acquired T&S stores. Around 450 of T&S’s convenience stores will be converted to the Tesco Express format, providing `grab-and-go’ and `top-up’ solutions in stores with a selling space of from 1,500 square feet. This reflects Tesco PLC’s expansion from its traditionally large supermarket format into the local neighbourhood grocery market. These stores will complement the larger stores in both geographical location and product lines offered.
Having entered into an alliance with Air Miles, at the expense of Sainsbury’s Reward Card, Tesco PLC was faced with Sainsbury’s new loyalty venture — Nectar — in the second half of 2002. In response to this, Tesco PLC has entered into a partnership with Allders, to introduce a scheme whereby Tesco Clubcard holders can earn points at Allders stores. However, these points can still only be redeemed at Tesco stores or against Air Miles.
Further developing its position as an Internet Service Provider (ISP), Tesco contracted NTL Business in September 2002 to deliver a complete ISP service. Tesco.net currently markets Anytime, an unlimited Web access package, in addition to `pay-as-you-go’ and unmetered options.
Tesco PLC recorded a turnover of £23.65bn in the year ending 23rd February 2002, a 12.7% increase on the 2001 figure. Pre-tax profit increased by 14% to reach £1.2bn over the same period.
Founded in 1904 by Wallace Waite, Arthur Rose and David Taylor, the business was acquired by the John Lewis Partnership in 1937 and opened the first Waitrose store in 1955. With 136 stores nationwide, Waitrose now accounts for more than half of the Partnership’s total business. The company is based primarily in London and the south of England, although it also has stores in Scotland and Wales; it has no plans to expand overseas. Waitrose Ltd also provides goods for Ocado, the online grocer, in which John Lewis owns a 40% stake.
Waitrose concentrates its business on providing high-quality own-brand goods for the upper end of the grocery market; it aims to provide the convenience of a supermarket, with the service of a specialist food shop. Competition in the UK supermarket and superstore market has seen many of Waitrose’s rivals mimicking this approach; this has resulted in the company’s market share being reduced. However, Waitrose is now succeeding in attracting new customers, while strengthening its position with the existing customer base.
Current and Future Developments
As part of its commitment to providing high-quality goods and promoting British produce, Waitrose Ltd is looking to forge closer links with its suppliers. The company is concentrating on new product development (NPD), with the focus on new varieties and on encouraging regional producers. Waitrose aims to get its suppliers more involved in the packaging and marketing of its goods, as it believes this will help promote the authenticity and reliability of produce available at Waitrose stores. This move is part of Waitrose’s aim to offer its customers the convenience of a larger supermarket, without sacrificing the service given by smaller specialist food shops.
In October and November 2002, Waitrose conducted trials of a `data handset’, which will allow customers to gain information on the products available in store. Selected cheeses, wines and other produce will each have a code number displayed on the shelves. The customer can enter this number into the handset to obtain information about the product and recipe suggestions. The technology is borrowed from that already used by museums to offer `audio guides’.
Further technological developments at Waitrose include the roll-out of portable scanning systems. Following successful trials in 2002, the company is to introduce Quick Check scanners into all of its stores nationwide. These allow the customer to scan goods as they are picked off the shelves, and is aimed at increasing efficiency at checkouts. In stores where the trials were carried out, Quick Check was used for between 15% and 20% of sales.
The second half of 2002 saw Waitrose enter into a partnership to create Ocado, an online grocery retailer that at present delivers to Hertfordshire and North London. This is currently running in parallel with Waitrose’s own Waitrose Deliver, an online shopping portal that sources deliveries from the company’s larger stores.
If Ocado proves to be a success, it is likely that it will be expanded to more areas nationwide, and replace the existing Waitrose Deliver service.
For the year ending 26th January 2002, Waitrose Ltd’s turnover increased by 9.7% to £2.17bn. Over the same period, pre-tax profit increased by 133.9% to reach £60.1m.
Wm Morrison Supermarkets PLC
From its Bradford base, Wm Morrison Supermarkets PLC operates 117 stores in the UK, almost exclusively in the north of England. The stores offer a variety of food and non-food product lines (including cars at some locations), and 96 of the stores have petrol stations. The Morrison family retains a 40% stake in the company, and its Chairman is Sir Kenneth Morrison. The company plans to expand and wants to establish a nationwide presence; it believes that this would be best achieved by purchasing real estate from existing retail chains, rather than building on green- or brown-field sites.
Rather than introducing a customer-loyalty scheme, Morrison’s philosophy is to provide consistently low prices. Morrison’s customers are acknowledged as the most loyal in the industry.
Current and Future Developments
In a continued bid to expand from its traditional north of England base, Wm Morrison Supermarkets PLC opened a third distribution centre in May 2002, to service its southern stores.
Wm Morrison Supermarkets PLC refuses to follow the major multiples in the UK; it has no intentions to introduce any customer-loyalty scheme, and has rejected the current trend to expand into non-food lines. The company says that its customers come to their stores to buy food and groceries, and not soft furnishings or “high fashion”.
In the year ending 3rd February 2002, Wm Morrison Supermarkets PLC recorded a turnover of £3.92bn, an increase of 11.9% on the previous 53-week period in 2001. Pre-tax profit reached £243m.
Aldi Stores Ltd
In 1990, Aldi Stores Ltd became the first of the European discount stores to venture into the UK market. It brought a successful European format, whereby discount stores provide for customers basic grocery needs and complement more specialised stores. The original prophecy that Aldi’s arrival on the UK market would pose a major threat to the existing retailers has not been realised. However, Aldi Stores Ltd has been in the UK for 13 years, and continues to expand.
An average Aldi store carries 600 to 800 lines, compared with 20,000 in the larger UK supermarket multiples. The majority of these products are imported from Europe, with a few added own-brand products throughout the store.
Aldi supermarkets are largely based in the Midlands and the north of England, but the company has expanded to Northern Ireland and the Republic of Ireland. The company is actively searching to purchase sites for new stores and is looking to purchase green and brown-field sites in town centres or on the edge of town centres. The company aims to expand nationwide.
Lidl’s UK operations are operated by Lidl UK GmbH, based in Stuttgart, Germany. The sole purpose of Lidl Ltd is to act as an employer, since Lidl UK GmbH thought that workers would prefer to be employed by a UK-based company. The stores are owned by Lidl UK Properties, financed largely by bank loans.
Lidl opened its first UK store in 1994 and continues to expand. Each store stocks a standard range of around 1,000 products, the overwhelming majority of which are own brand. These goods are selected to provide the basic grocery needs of its customers.
Having expanded from its original north of England base to Northern Ireland and Scotland, Lidl has ambitions to expand further nationwide.
Netto Foodstores Ltd
Netto Foodstores Ltd opened its first store in the UK in Leeds in 1990 and is owned by the Danish retailer Dansk Supermarkets AS. The company has stores based mainly in the north of England, although it has a second division, Netto Foodstores South Ltd, based in Reading.
Netto’s pricing policy is to offer product lines at a cheaper rate than its competitors, or to be as cheap as the cheapest competitor but with superior product quality. The company’s stores offer a limited range of discounted products, with a store typically offering around 950 lines. Larger-format stores consist of the main grocery retail space with a number of concessions, such as bakeries and butchers.
The principal outside suppliers involved in the supermarket and superstore market are food manufacturers and technology companies.
Food and Non-Food Manufacturers
Food manufacturers are the single most important suppliers to the supermarket chains. The major companies have established long-term relationships with a wide variety of food manufacturers and suppliers of non-food brands. The expansion of specialist markets, such as organic foods and ethnic products, has seen a growth in the number of suppliers to supermarket chains. The companies involved range from large multinationals to smaller domestic firms.
Supermarkets have enormous buying power, and are extremely influential purchasers. They are also major customers to food groups as buyers of own-brand products.
Retail Technology Suppliers
For the major supermarket chains, the development and implementation of retail technology is a further way of improving customer service and reducing overheads. Self-scanning is among other developments being trialled by some multiples to ease congestion at checkouts.
CRM technology is being used in the refitting of stores by many of the major multiples. J Sainsbury PLC is using its database of reward-card information to help design its new store formats.
ADVERTISING AND PROMOTION
In 2002, the major supermarket and superstore advertisers increased their expenditure, although the amount spent was still down on previous years. Somerfield PLC’s expenditure increased rapidly, redressing the cut in advertising spending after the acquisition of Kwik Save.
The 2002 data show the effect of the slowdown in consumer spending on advertising expenditure. Companies such as Tesco PLC and ASDA Group Ltd reduced advertising, possibly focusing on specific campaigns. By contrast, Safeway PLC, among others, increased expenditure, to try and to attract more customers.
J Sainsbury PLC continues to be the major spender on supermarket advertising in the UK, spending almost twice the amount invested by Tesco PLC in 2002. This reflects the company’s desire to consolidate and reaffirm its position as the number two supermarket chain.
Table 6: Main Media Advertising Expenditure by Supermarket and Superstore Chains (£000), Years Ending September 2001 and 2002
2001 2002 2001-2002
J Sainsbury PLC 41,193 44,307 7.6
Tesco PLC 24,510 22,829 -6.9
ASDA Group Ltd 22,373 20,412 -8.8
The Big Food Group PLC† 14,091 12,262 -13.0
Somerfield PLC‡ 1,667 9,852 491.0
Waitrose Ltd 5,905 7,046 19.3
Wm Morrison Supermarkets PLC 5,345 6,973 30.5
Lidl Ltd 5,242 6,573 25.4
Safeway PLC 2,091 3,703 77.1
Aldi Stores Ltd 2,945 3,695 25.5
Budgens Ltd 858 926 7.9
Total 126,220 138,578 9.8
† — includes advertising for Iceland stores only
‡ — includes advertising for both Kwik Save and Somerfield
Source: Nielsen Media Research
5. Strengths, Weaknesses, Opportunities and Threats
• The continued growth of supermarket and superstore chains has seen them become `one-stop shops’, offering more diverse services, either in-store or through partnerships. The vast majority of the UK population conducts its principal food shopping at one of the major retailers, and can now purchase financial products at the same place as it shops for food, clothing and electrical goods.
• As the multiples grow and develop, they are in a position to offer complementary store formats — smaller stores in city centres to cater for `grab-and-go’ purchases and `top-up’ solutions, which complement shopping at larger-format stores. The major chains have a distribution and support network with which the smaller retailers cannot compete, and so are well placed to gain a share of the lucrative convenience-store market.
• Given their size, both in terms of product lines stocked per store and number of stores nationwide, the major multiples are in a position to offer diverse ranges of products, such as organic foods and products free from genetically-modified (GM) ingredients. Their dominant position in the market allows them to cater for the needs of specific customers, and to offer all customers the opportunity to discover a wide variety of products.
• Expansion into non-food lines will see supermarket’s use their buying power to reduce prices. The major chains played an important role in the defeat of retail price maintenance (RPM) for books and over-the-counter pharmaceuticals. It is likely that the supermarkets will be able to offer a wider variety of non-food goods at lower prices than other high-street outlets.
• Supermarkets need to develop other means of competition, rather than relying primarily on price. Prices can only be reduced so far, and the smaller companies will be unable to match the reductions offered by the larger chains. Further to this, possible future EU legislation to prevent the sale of goods below cost price will set a lower limit on price reductions, and will prevent some of the tactics already in use in the market.
• Diversification of store formats is occurring in parallel with more centralised supply networks: as the number and variety of store brands a chain offers increase, so do the particular supply needs. City-centre and urban stores are likely to have little warehouse space, and so require small but regular deliveries. By contrast, large, out-of-town hypermarkets are likely to have larger warehouse facilities and so only require regular deliveries of fresh produce.
• For the major companies to be changing both their store formats and their distribution networks at the same time increases the possibility of problems in the supply chain.
• Consolidation continues to be an issue within the market, following Wal-Mart’s acquisition of ASDA Group Ltd. During 2002, there was a great deal of speculation about bids for Safeway PLC, both by rival supermarket chains and financial institutions. Further consolidation, if creating a quasi-monopolistic situation, could have an important impact on the UK supermarket and superstore market.
• The supermarket multiples are ideally placed to offer an even greater range of non-food goods than at present. This is a key growth area for the major companies. Research suggests that the UK consumer would not be hostile to the development of the hypermarket format found elsewhere in Europe.
• The growth of the major multiples as `one-stop’ shops, places them in a position to offer a variety of services to their customers. ASDA has started to make use of this position by providing influenza inoculations in many of its stores in winter, at a vastly reduced rate compared with private clinics. There is the opportunity for similar services to be offered through supermarkets stores, with legal advice and postal counter services as just two such examples.
• In late 2002, the Government was considering allowing convenience stores to operate at motorway service stations in the UK, as a means of introducing competition into this market. Such a move would provide an opportunity for supermarket chains to operate smaller-format stores in a potentially lucrative market. Brands such as Marks & Spencer’s Simply Food or Tesco’s Extra would be able to offer convenience foods in addition to a small number of other lines. Such stores could be especially successful on stretches of motorway used by a high number of commuters, who could use the stores for `top-up’ solutions to their major food shopping.
• While grocery spending tends to be one of the last areas affected by recession, the recent slow-down in consumer spending has put price in the focus of many customers’ minds. A new price war could be potentially dangerous for some of the smaller and less successful companies operating in the UK supermarket and superstore market. Only the larger UK chains have the reserves to support a round of price cuts and loss leaders.
• Supermarkets continue to grow and thrive in the UK. However, a number of small yet significant pressure groups, which oppose the dominance of the supermarket multiples, such as farmers and countryside groups, blame the predominant position of the supermarket chains as buyers for driving down the price paid for their produce.
• Government legislation aimed at limiting out-of-town developments will make it difficult for supermarkets to obtain planning permission for new out-of-town stores.
6. Buying Behaviour
In the second half of 2002, there was renewed interest in customer-loyalty schemes among many of the major UK supermarket chains. J Sainsbury PLC’s Nectar programme and Tesco’s new alliance with Allders are to be accompanied by a possible new loyalty scheme operated by Marks and Spencer PLC. In spite of this, most reports suggest that price and convenience are the most important factors to customers. Safeway has no plans to reinstate its former ABC Card, and Wm Morrison Supermarkets PLC has the industry’s most loyal customers, without any form of loyalty scheme.
An important trend among UK consumers is to visit one of the major multiples for their weekly food shop; the choice of store usually being made on a combination of convenience and price. In addition, smaller stores are used for more regular shopping and for `top-up solutions’. The major UK supermarket multiples appear to be recognising this trend and, as a result, are opening more smaller-format stores. In a reversal of the trend over the previous years, a number of the major players in the UK market are returning to town and city centres, with specialised stores to complement their larger-format stores.
FREQUENCY OF SHOPPING
The concept of the weekly shop remains popular among the majority of UK consumers. According to BMRB International’s Target Group Index (TGI) 2002 survey, 52% of adults did their regular major shopping once a week. This figure shows an increase from the 2000 survey, when 50.9% of adults shopped once a week.
Among those who shop more frequently than once a week, older shoppers prevail. A number of factors explain this pattern, including more limited incomes and less access to personal transport. The effect of a traditional shopping pattern must also not be overlooked among this demographic group.
Purchasing patterns remain fairly fixed, despite the heavy promotion of Internet shopping. There appears to be a reinforcement of weekly shopping as the norm. While the proportion of adults shopping once a month remains largely unchanged compared the 2000 survey, there has been a reduction in adults shopping less often, from 4.2% in 2000 to 2.6% in 2002.
Table 7: Frequency of Regular Major Shopping and Other Shopping (000 and % of adults), 2002
Regular Major Shopping Other Shopping
(000) (%) (000) (%)
Every day 1,175 2.5 2,699 5.8
4-5 days a week 1,575 3.4 1,544 3.3
2-3 days a week 6,868 14.6 8,826 8.8
Once a week 24,415 52.0 2,968 6.3
2-3 times a month 4,226 9.0 2,189 4.7
Once a month 2,802 6.0 977 2.1
Less often 1,203 2.6 747 1.6
Source: Target Group Index (TGI), © BMRB International Ltd, 2002
Recent years have seen a change in the pattern of supermarket opening hours, with many of the major multiples now offering 24-hour opening in a number of stores. This has been accompanied by longer opening across the market and almost universal Sunday opening. Consumers are becoming more able to choose when they shop according to their own convenience, as opposed to the restrictions of supermarket opening hours.
TGI’s findings show that 4.5% of adults conducted their major shop on Sundays, a figure that has remained stable during the past 3 years. Despite the spread of Sunday opening, it remains by far the least popular day for visiting the supermarket in the UK.
The most popular days for regular major shopping remain Thursday, Friday and Saturday, with Saturday the most popular day for other shopping. While Thursday and Friday are traditionally late-night openings for supermarkets, new patterns of opening hours mean that this is not always the case. Of more importance is the fact that many people consume most of their food at weekends. It therefore makes more sense for them to shop as close to the weekend as possible. Hence, Friday is the most popular day for regular grocery shopping. Lifestyles and work practices also dictate that people can only shop at weekends or later in the evening.
Table 8: Shopping Days for Major Shopping and Other Shopping (000 and % of adults), 2002
Regular Major Shopping Other Shopping
(000) (%) (000) (%)
Monday 3,484 7.4 3,583 7.6
Tuesday 3,379 7.2 3,624 7.7
Wednesday 3,355 7.1 3,857 8.2
Thursday 5,938 12.6 3,141 6.7
Friday 9,190 19.6 3,434 7.3
Saturday 7,275 15.7 4,982 10.6
Sunday 2,119 4.5 1,769 3.8
Source: Target Group Index (TGI), © BMRB International Ltd, 2002
TGI figures show that 57.6% of UK shoppers live within 2 miles of a major supermarket chain. This figure is lower than in previous years, having fallen from 59.1% in 1998 and 60.2% in 2000. The proportion of adults travelling less than a mile increased rapidly, from 27.4% and 27.5% in 1998 and 2000 respectively, to 31.7% in the 2001 survey. This reflects the growth in the number of supermarket stores in recent years. However, this number has fallen to 25.6% in 2002. Although most adults choose to conduct their regular shopping close to home, 35.9% of adults travelled 3 miles or more, with 5.1% travelling over 10 miles. These figures have remained fairly constant over the past few years — 33.4% and 4.5% respectively in 1998. Shoppers who travel further for their regular major grocery shopping tend to live in the more sparsely populated areas of the country, where major supermarket construction is not deemed profitable.
Table 9: Distance Travelled for Major Shopping by Consumers (000 and % of adults), 2002
Under 1 mile 12,030 25.6
1-2 miles 15,017 32.0
3-4 miles 9,175 19.5
5-9 miles 5,318 11.3
10 miles or more 2,395 5.1
Source: Target Group Index (TGI), © BMRB International Ltd, 2002
MODE OF TRANSPORT USED
Despite the increased proximity of consumers to supermarket stores, more than three-quarters (75.7%) of UK adults make the journey by car. This is slightly up on the 2000 figure of 73.7%. The use of cars as primary means of transport is facilitated by the ease of access to supermarkets (particularly when in out-of-town locations) and the provision of free car parking on site.
Walking is the second most popular means of transport, reflecting the decreasing distance travelled to supermarket stores. The third most popular means of transport is bus travel, perhaps reflecting the many dedicated services that operate to out-of-town supermarkets and shopping centres.
Table 10: Mode of Transport Used for Major Shopping (000 and % of adults), 2002
Car 35,527 75.7
Walk 6,120 13.0
Bus 3,843 8.2
Bicycle/motorcycle/moped 326 0.7
Train 159 0.3
Source: Target Group Index (TGI), © BMRB International Ltd, 2002
7. Current Issues
PLASTIC BAG TAX
Following the successful experiment with a plastic-bag tax in the Republic of Ireland, the Department of Environment, Food and Rural Affairs (DEFRA) has investigated the viability of a bag tax in the UK. Environment Minister, Michael Mecher, described such a bag tax as `a cracking good idea’, and intends to argue for the Government to adopt this idea.
In the Republic of Ireland, there has been a reported 90% decrease in the number of bags used since the implementation of the 15 euro cent tax in March 2002. Most Irish shoppers now keep their bags and reuse them. In the UK, only one in every 200 plastic bags is currently recycled.
Despite consumer surveys suggesting that price is the most important factor for customers, 2002 saw renewed competition between the leading UK supermarket chain’s loyalty schemes. J Sainsbury PLC, in partnership with Barclaycard, BP and Debenhams, replaced its existing Reward Card scheme with Nectar, operated by Loyalty Management UK. The company has claimed early success for this change, with a reported increase in customer numbers that it assigns to the new scheme. However, this is far from certain.
Sainsbury’s main competitor, Tesco PLC, entered into an agreement with Air Miles, to allow its Clubcard points to be redeemable against flights. The company claims that this has resulted in increased customer numbers. Towards the end of 2002, the company entered into a partnership with Allders, to increase the locations where customers can earn Clubcard points. Marks & Spencer is running trials of its own loyalty scheme.
This renewed attention to customer-royalty schemes is in spite of consumer reports, which claim that Wm Morrison Supermarkets PLC has the most loyal customers without any form of loyalty scheme. However, 2002 saw the first application of loyalty-scheme data, with J Sainsbury’s refurbishment of its nationwide stores based on the data in its reward scheme database.
With the growing saturation of the UK supermarket and superstore market, the major chains have expanded the variety of store formats they offer. There is a significant trend towards smaller-format stores, often specialising in convenience foods and `top-up’ solutions, to complement the larger stores. This is a natural development, given that provision of large superstores has reached saturation point in many areas.
In addition to smaller-format supermarkets, such as Tesco Metro and Sainsbury’s Local, the major UK chains are opening small, dedicated food stores in locations such as petrol forecourts and railway stations.
NON-FOOD PRODUCT LINES
Non-food product lines are accounting for an ever-increasing percentage of selling space in UK supermarkets. In addition to more traditional non-food lines, such as pharmaceutical products, supermarkets are now selling clothing, electrical products and white goods. The current refurbishment of Sainsbury’s stores in the UK will see some formats dedicate up to 20% of selling space to non-food products. This will see them competing with Tesco and ASDA in this area.
Supermarkets are expanding their lines of own-brand goods to include non-food lines. Many of the major retailers have exclusive brands of clothing, and developments in store formats are ushering in other own brands. Tesco has added a large number of non-food items to its Finest range, including lead-crystal glassware and Egyptian-cotton sheets.
The growth of digital television in the UK has seen an increase in interactive trading. It is now possible to order pizza, book holidays and buy clothing via interactive digital television, and a recent partnership between Sainsbury’s and NTL will see grocery shopping added to that list. Supermarkets are ideally placed to launch retailing by interactive television, as it would merely involve an extension of their existing home shopping and online retailing systems.
ENLARGEMENT OF THE EU
Expansion into Central Europe by retailers such as Tesco and Carrefour has been successful and these companies are extending their operations in this area. The countries in which they operate are set to be part of the first wave of eastern EU expansion in 2004. Tariffs and labour restrictions between entrant states and existing members will disappear. It is likely that more UK and European supermarket chains will grow into Central Europe, and while Tesco PLC will have a first-mover advantage, it will have to face greater competition in this area than has previously been the case.
In November 2001, Levi Strauss won a court battle with Tesco PLC concerning the sale of `grey-market’ imports of Levis products. Tesco stores were retailing pairs of Levis 501 jeans at a price of £32.99, compared with the retail price of £50. However, in October 2002, Levi Strauss signed a deal with Wal-Mart to supply a special brand of `Signature’ jeans, to retail at £20 in the company’s stores worldwide. Many trade observers see this move as a victory for the power of supermarkets as it highlights their influence over the pricing policies of other major companies. However, this could also be seen as a victory for Levis, which has maintained its pricing policy and introduced an entry-level product for supermarkets.
Throughout the second half of 2002, there was a great deal of speculation in the City concerning possible takeover bids for Safeway PLC. It was widely reported that Wal-Mart was interested in acquiring Safeway. While the company denied these rumours, such a takeover would be interesting, since Safeway and ASDA have radically different target markets. It is widely believed that Wal-Mart is looking for real estate to expand its operations in the UK, and the acquisition of Safeway PLC could provide for this.
CENTRALISATION OF SUPPLY NETWORK
Alongside their store refits, the major supermarkets in the UK are reorganising their supply networks. The trend is for greater centralisation of the process, with J Sainsbury PLC aiming to have just four distribution centres for the UK by January 2004. As stores are reorganised, the larger outlets will have a greater capacity of storing products. Fresh produce will be delivered frequently to both larger stores and to the network of small-format stores. Some smaller stores will also source deliveries from nearby, larger superstores.
This reorganisation of the supply chain is accompanied by investment in IT and supply-chain management (SCM) systems.
8. The Global Market
THE INFLUENCE OF EUROPEAN SUPERMARKET CHAINS WORLDWIDE
The strength of UK and other European supermarket retailers has resulted in their having a major influence on the global market. Overseas expansions by the UK retailers Tesco PLC and J Sainsbury PLC are accompanied by similar expansions by the Dutch retailer Ahold, and Carrefour and Auchan of France, among others.
Expansion overseas by Western European supermarket retailers concentrates on similar markets. Carrefour and Tesco have successfully penetrated the Central European and South East Asian markets, where they are in competition. The major European retailers are expanding and having great influence in those areas where there is greater scope for growth than in the domestic markets.
The market in Asia is an important growth area for supermarket retailers. Tesco PLC’s Asian operations saw growth rise by more than 50% in the first 6 months of 2002. In September, the company opened its largest store in Bangkok, with a selling space of 368,000 square feet. This follows a trend of European retailers expanding successfully in Asia.
However, expansion of foreign retailers is facing something of a backlash in parts of East Asia. Thailand’s Government is committed to creating a `more level playing field’ for domestic companies to compete with `richer foreigners’. In Malaysia, the Government has introduced a 2-year planning process for new supermarkets and will not allow building within 2 miles of city centres and housing estates. Tesco had planned to open 15 new stores in Malaysia between 2001 and 2006; to date, only two stores have been built.
China is an area into which the European retailers are keen to expand. Growth in consumerism and a move away from traditional Asian food markets are creating demand for large supermarkets. With China’s recent membership of the World Trade Organization (WTO), foreign companies should have greater access to the Chinese market, although government interference in foreign companies is evident. Carrefour has been forced by the Chinese Government to reduce the stake it owns in its 27 stores in China.
In 2003, the UK economy is expected to slow, as the effects of the global slowdown take hold. However, it is not expected that the UK economy as a whole will enter recession. Consumer spending has slowed slightly, yet it remains fairly strong and this is helping to keep the UK out of recession.
Expansion of outlets is a major issue in the market, as the larger companies expand to include more convenience stores. Supermarket chains are hoping to take an ever-increasing share of retail sales of both food and non-food products.
At present, online retailing accounts for only a small quantity of supermarket sales. However, as penetration of the Internet and broadband access increases, a growing number of customers will use this means of grocery shopping.
FORECASTS 2003 TO 2007
The UK supermarket and superstore market will continue to grow, although the rate of growth is expected to decrease compared with recent years. Key Note forecasts that by 2007, retail sales of food in supermarkets and superstores will reach £101.13m, which represents 16% growth on the estimated sales for 2003.
Table 11: The Forecast Total UK Food Market in Supermarkets and Superstores by Value at Current Prices (£m at rsp and %), 2003-2007
2003 2004 2005 2006 2007
Value (£m) 87,199 90,687 94,138 97,617 101,130
% change year-on-year 4.2 4.0 3.8 3.7 3.6
rsp — retail selling prices
Source: Key Note
The recent trend for diversification in store formats is likely to result in the acquisition or building of smaller-format stores by the major retailers. With larger supermarkets reaching saturation point, small, convenience stores are an important growth area. Small-store expansion may be achieved by franchising, such as the recent agreement between Marks and Spencer PLC and Compass to provide Simply Food stores at railway stations. It may also be achieved by takeovers and the purchase of real estate, to give the major supermarket multiples a foothold in the suburban convenience-food market.
Wal-Mart’s entry into the UK supermarket and superstore market led to an increase in non-food lines available at ASDA stores. Tesco PLC has, so far, been the only company to match ASDA in terms of non-food products offered, although with all the major companies currently undergoing store refit programmes this looks likely to change. Non-food lines are perceived as a growth area, and will hold an increasingly important place in supermarkets. The type of non-food lines offered are likely to expand to include white goods and electrical products.
Continued Expansion of Internet Usage
With the recent launch of the online grocer Ocado, operated in conjunction with Waitrose Ltd, online grocery shopping is expanding in the UK. The major chains are able to use their larger stores and distribution centres to source orders, and have their own delivery networks. However, online shopping still accounts for only a small number of sales for the major multiples, and is an area for future growth.
The major companies have launched advertising offensives for their online ventures and see these as an integral part of their store reorganisations. As Internet use increases and broadband expands, the use of online grocery shopping will increase.
New Point-of-Sales Technology
Trials of new point-of-sales (PoS) technology have been carried out by both Marks and Spencer PLC and Waitrose Ltd in 2002. This new technology aims to bring more automation into the purchasing process, by providing for self-service checkouts and hand-held information providers. If these trials prove to be successful, they could be implemented nationwide, and by other supermarket chains. Sainsbury’s and Safeway have already indicated their intentions to conduct trials of self-scanning technology in 2003.
In a highly competitive market, improved efficiency and automation could provide a way of encouraging customers away from rivals. However, many shoppers are unlikely to be attracted by automated checkouts, so these would have to supplement, rather than replace, the existing options.