Supermarkets stock up on convenience stores

Local convenience stores appeared to be a dying breed in the 1980s and 1990s, when out-of- town supermarket developments were all the rage. But data out last week confirms that these very chains are now providing one of the primary growth opportunities for the major supermarket groups.

Thwarted by planning permission restrictions to build further out-of-town developments, in the past two years supermarket groups have been snapping up convenience store chains as a vehicle for sustained growth. Bells Stores, Alldays, Europa and T&S Stores are just a few of the companies to be subsumed by major multiple retailers.

Last week, J Sainsbury added to the list with the acquisition of Jacksons Stores, owner of 114 outlets across Yorkshire and the North Midlands. The deal boosts Sainsbury’s convenience portfolio to 257 outlets. But it is Tesco that is making the most headway into this sector; the chain already commands 6 per cent of the convenience market.

As well as offering the major multiples valuable additional retail floor space, the convenience sector is also displaying rather rude health in its sales figures. Outpacing the overall grocery market’s 2003 sales growth of 3.3 per cent, convenience store sales rose by 7.3 per cent in the same period, according to data from IGD Research’s Grocery Retailing 2004 report, released last week.

Convenience sales command a substantial 20 per cent market share of the total UK grocery market, according to the report. These figures illustrate the revenue opportunities for supermarket chains entering the sector.

Following this week’s deal, Sainsbury’s plans to rebrand the Jacksons estate as ‘Sainsbury’s at Jacksons’, using a combination of the companies’ logos. It adopted the same approach with the 54-strong Bells Stores chain, acquired in February, five of which now have the Sainsbury’s at Bells identity.

‘This [dual-branding] has been working well [at Bells] and we plan to do the same thing with Jacksons,’ confirms a Sainsbury’s spokeswoman.

Retail interiors at the rebranded Bells stores were overhauled to allow for the introduction of 500 Sainsbury’s own-label products. Improved lighting and flooring were installed, along with additional refrigeration sections. The retail designs were created by Sainsbury’s in-house design team, since the retailer has dropped 20/20 as its lead retail consultancy.

According to IGD, it is the development of larger stores – and the extended range of products that they can stock – that has typically enabled companies such as Tesco, Sainsbury’s and Asda to take a lead in the market. However, this process has been checked by recent moves by supermarket chains into the convenience sector: average supermarket floor space has fallen to just below 1400m2. An outlet is classified as a superstore if it covers an area of 2300m2 or more and convenience stores are generally 278m2 or smaller.

In April, Jacksons appointed Brahm to refresh its brand positioning and to examine the group’s store layouts and fascias (DW 29 April). According to Brahm creative director Mike Black, it is not clear at this stage what effect the Sainsbury’s deal will have on the consultancy’s plans, but he hopes to continue with the brand development work.

‘It is a very exciting sector. There is intense competition for local stores; shopping is coming home,’ says Black. ‘People are making fewer planned shops and the traditional local shops are beginning to realise that they need a broader product range.’

Black believes that customers now expect more from convenience formats; supermarkets are capitalising on this trend. ‘People now expect some modernity [in the stores],’ he explains. ‘They are expected to be bright, clean and better laid out. The independent chains need to be seen to be competing in these areas.’

Consolidation in convenience

Business acquired Acquisition by Number of stores Annual sales of acquired stores (#m) Cost to acquire (#m)
Budgens Musgrave 235 485 (est) 320
Europa Tesco 45 73 54
T&S Stores Tesco 1215 950 530
Local plus Co-op 64 50 25
Bells Stores J Sainsbury 54 56 22
Balfour Co-op 111 67 30
Alldays Co-op 603 510 (est) 131

Source: IGD Research

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