"British retailers have brought their issues on themselves"

Emergence of the convenience store

Real estate firm CBRE stated in its most recent report that this largely explains the 2.8 % market share the four biggest British retailers have lost since 2011. Nevertheless, the firm sees no reason to panic: “The government’s ambitious plans for new towns and enlarged suburbs will further boost grocery space demand.”

CBRE wanted to “offer a nuanced picture of the position of the four largest food retailers”, Tesco, Asda, Sainsbury’s and Morrissons. Obviously, the rapid discounter growth (tripling their store portfolio since 1998) has been an issue for the ‘Big-4’, but there are other issues at play, according to the real estate adviser.

One of those is the rapid emergence of convenience stores. 1996 legislation was designed to protect city-center retailers and that is why the 4 largest retailers (mainly Tesco and Sainsbury’s) focused on expanding their convenience store formula. The Big-4 therefore put the development of large neighbourhood supermarkets on the back burner.

Caught between high and low

This lack of large supermarkets was filled when the four large retailers moved in when formulas like Somerfield, KwikSave, Safeway and Netto left the British market. In the 10 years up to 2008, they kept adding new supermarkets, taking their joint market share from 58.7 % (in 1998) to 81.4 % (in 2008).

From 2011 onward, the supermarket giants were forced to hand in parts of that huge growth. Discounters like Aldi and Lidl were on the rise, but the ‘pound stores’ have also garnered a lot of turnover growth in the non-food and grocery branches.

High-end formulas, like Waitrose, have also performed extremely well. Lastly, but definitely not least, the chains’ own strategy has also damaged their position: with huge numbers of convenience stores, they have competed with their own core business, CBRE says.

Changed shopping behaviour

Consumers have not exchanged large supermarkets for a complete shopping trip at convenience stores, but the widespread network of small stores (like convenience stores and small discount stores) has definitely impacted shopping behaviour. Customers have become used to shopping in several stores and they pay attention to discounts for which they are willing to make a detour. 

This cannibalizes the ‘one-stop shopping’ on which the suprstores thrive, according to CBRE, which sounds similar to what Waitrose CEO Mark Price recently said. He believes that weekly shopping visits are almost a thing of the past in Great Britain. Unlike CBRE, Price flat-out says that the neighbourhood supermarkets belonging to the ‘Big-4’ are horribly outdated.

“Supermarkets are 20 years out of date”

According to Price, the Big-4 have lost customers to Aldi and Lidl because of the outdated vision they have on consumer behaviour. “People are buying food for now”, he said in his own food trend and consumer behaviour report which Waitrose has published for the second time this year: “The notion that you are going to go and push a trolley around for the week is a thing of the past.”

He believes customers are now buying food for immediate consumption or for tonight’s meal. Often, at 16h, customers do not know what they want to eat that evening. He says these lifestyle changes are the result of the financial crisis and changes in technology. “People are managing their life in a much more efficient way”, the Waitrose CEO said.

As life-changing as supermarket

He even believes that these development in consumer behaviour are as life-changing as the very first supermarkets in the 1950s. “This is a once in 50 to 60 year change”. “All these trends are effectively pulling people out of big box, out-of-town retailing. That is really the challenge that the ‘big four’ are facing: they have an estate for how people shopped two decades ago.” Convenience stores and home delivery for online orders are much more contemporary and Waitrose feels it has managed to tap into these trends perfectly.

Numbers seems to agree with Price: Waitrose’s 330 stores, among which 55 convenience stores, have managed a much higher turnover increase than the Big-4 in the past quarter. They grew 6.8 %, which is huge as the average turnover increase in this particular market is a mere 0.7 %.

“Let’s not exaggerate online’s influence”

CBRE though feels that “it is easy to over-egg both the rate and scale of grocery market change occurring. Superstores continue to capture the bulk of main grocery sales and, unless households stop eating, will do so for many years to come”, although it should be pointed out that in this case, the real estate advisor is not a completely objective party.

Justing King, former Sainsbury’s CEO, agrees: he has also warned not to exaggerate the online world’s influence on food retail. “It just might be that customers really do quite like doing their own shopping in real shops for their food and groceries”, he believes.

500 new superstores lined up

CBRE has its own stake in believing that large supermarkets will not disappear, as the real estate firm will indubitably have a share in the more than 500 superstores (with a minimum 4,500 sqm store size) currently planned.

Difficult market conditions have slowed down a lot of projects, but CBRE believes most of the planned superstores will be built in the end. The authors think that a number of infrastructure-improving projects and mixed-use developments will boost supermarket demand. This will definitely be the case in the more prosperous regions in the south of England, an area in which Waitrose is well-represented.