Retailing
September/October 2002
Convenience
Retailing UK Supermarket
Style
By Dr Alan Treadgold,
Director, Research & Consulting, Leo Burnett
upermarket chains in the UK are increasing their presence in the
convenience store sector.
Leading food retailers in the UK are proving increasingly
influential in the development of the convenience store sector. In particular
the two main UK supermarket chains, Tesco and Sainsbury, are putting
increasing emphasis on developing their presence in the sector. For
both businesses, the motivation to develop convenience stores as part
of their portfolios are fundamentally the same: firstly, consumers whose
lifestyles are promoting a trend towards top-up shopping at or close
to the point of consumption and, secondly, store development planning
legislation in the UK which is making the acquisition and development
of "superstore" scale sites increasingly difficult and expensive.
Formats Defined by Store Size
Both Tesco and Sainsbury operate two types of convenience
store formats, defined principally by store size. Sainsbury Central
are so-called "mixed mission" stores designed to capture both
top-up convenience sales and also small main shops, especially in smaller
metropolitan and suburban locations. Sainsbury Local are, by comparison,
smaller (2,000 to 6,000 sq.ft.) convenience focused stores, typically
located close to offices and transport hubs. Sainsbury operates a total
of 74 such stores. For Tesco, the distinction is between Metro and Express
stores. Metro are larger-scale stores (currently 168) and Tesco Express
are, as the name implies, top-up stores (currently 75).
Recent visits to Sainsbury Local stores in central London
provided some interesting insights. Firstly, Sainsbury is locating its
convenience stores in some notably expensive and high traffic sites,
including Oxford Street in Central London, which continues to be one
of the most expensive pieces of retail real estate in the world. The
cost of this location, and others like it is, of course, justifiable
in a UK setting by the substantial volume of foot traffic visiting the
site.
Secondly, Sainsbury clearly has some work still to do
in terms of the merchandising and management of these types of stores.
The product offer is, of course, a highly edited version of a much wider
merchandise range from full-size Sainsbury stores. The emphasis is on
pre-prepared meals, wines and beers (allowable in the UK), chilled and
frozen foods, a relatively modest fresh offer as well as snacks, sandwiches
and news. The Sainsbury brand is highly prominent in these stores, not
least from the volume of own label present on the shelves. In terms
of management, however, the stores are, perhaps, a victim of their own
success in that a lot of gaps on the shelves suggest that replenishment
is proving challenging.
These smaller store formats are the fastest growing parts
of the portfolio of both Tesco and Sainsbury. Furthermore, other UK
retailers are starting to show similar enthusiasm for the convenience
store category, albeit from a relatively low base. Safeway (no relation
to the Australian business of the same name) has, for example, an initial
presence of 19 smaller stores and ASDA - whose heritage is as a very
large store operator - is now beginning to develop smaller stores (albeit
considerably larger than the norm for convenience store operators).
Building Strength into their Brands
UK supermarket operators, especially Tesco and Sainsbury,
have shown themselves to be highly adept for many years now in taking
their brands into new parts of the market so as to capture more share
of the consumer retail dollar. In a previous era, this expansion took
these retailers into petrol retailing and financial services. Now it
is taking them into higher margin retailing, notably clothing, entertainment
and electrical products, as well as into convenience store retailing.
Neither does this enthusiasm for convenience end with the stores themselves.
Tesco claims leadership as the biggest online food retailer in the world
and Sainsbury, after a slow start, is now a strong number two in on-line
food retailing in the UK.
The message is clear: the leading UK food retailers, who
have spent many years building strength into their brands and executional
capabilities into their businesses, are now beginning to aggressively
extend these strengths into the convenience store sector. And as we
know well, what happens in the UK tends to happen in Australia not too
far down the track. The question is - how well prepared are you for
the competitive challenge?
Dr Alan Treadgold is Director of Research and Consulting with Leo Burnett,
Sydney. At Leo Burnett, Alan has established and leads a program of
research into strategic issues impacting retail and consumer products
companies globally and with a particular focus on Asia-Pacific. His
work in the retail sector includes strategy design and operational improvement
engagements with leading retailers in most sectors in the UK, Continental
Europe, North America, Asia and Australia.
Alan's experience combines management consulting in strategy
and marketing issues for retail and consumer products companies with
management and business theory in academic environments.
He presents at retail industry conferences and workshops
globally for both companies and retail associations. In March this year
he was a keynote speaker at the Australian Convenience Store Exhibition.