Grocery giants compete at cornering the market

Tesco’s takeover of £54m corner shop chain Adminstore – owner of Europa, Cullens and Harts – underlines the latest dynamic within the grocery sector. Having gone hyper, supermarkets are now looking to the corner store format. They are intent, it seems, on having their cake and eating it.

The latest Tesco move will see 45 local shops from Adminstore rebadged as Tesco Express, in addition to the 1200 stores it is still converting from the acquisition of T&S in 2002.

But competition across the sector is getting more and more intense. W M Morrison is in line to rejuvenate Safeway, and Sainsbury’s has announced a £130m takeover bid for TM Group, owner of Martins newsagents, not to mention its declared strategy of price reductions this year.

According to a report by retail research specialist Verdict, 2004 will see the first drop in prices for grocery products across the whole market in more than ten years. Although the report says Britain’s households stand to benefit from a £1bn fall in food bills, a question mark remains over how supermarkets will compensate for this predicted attack on the bottom line.

R Design founder David Richmond, who works on packaging for Tesco, thinks diversification will be the key to the supermarkets’ counter strategy. Richmond says the supermarket brands have already made a reputation for themselves about the value they offer in non-traditional lines like CDs and clothing.

‘Supermarkets have always competed on price,’ he says, ‘but look at what their sales of CDs have done to retailers like WH Smith. They are killing them.’

‘Selling cars didn’t materialise for Tesco in the end,’ he continues, ‘but there are so many areas where the supermarkets can compete now, such as electrical and white goods, that the future looks good for them.’

All eyes are on the supermarket sector. The ever elusive measure of market share will be shaken up with the imminent assimilation of Safeway. According to the latest research by Verdict, Tesco was the fastest growing supermarket on the high street last year, increasing its market share by 1.4 per cent. The Adminstore deal will look to continue the trend.

These predicted falls across the whole market sector seem to have been fuelled by lower prices at one or two individual stores, particularly Asda since the Wal-Mart takeover – Asda reduced the price of an average basket of goods from £38.57 to £36.45 last year.

Producers and farmers, who have been vocally campaigning about the impact of falling prices on suppliers, look set for another tough year. But as JHP director Steve Collis points out, few third parties working in this climate will be exempt from the price pressure, including design consultancies, when supermarkets come to negotiate their own costs.

JHP has extensive experience of the supermarket sector, with Somerfield, Waitrose, Asda, Budgens and Co-op among its latest clients. In Collis’s view, the key drivers at the moment in terms of design are the ‘appropriateness’ of the store offer to the location, the rise of the ‘convenience store’, and the ‘new food culture’ which is democratising food buying across Britain.

Supermarkets are slowly beginning to trial more experimental formats in the search for growth, and JHP worked closely with the Waitrose in-house team on the Waitrose Food and Home store in London’s Canary Wharf. It’s what Hollis calls ‘an eating and living experience all in one place’, designed as concentric hubs radiating to the edge of the store. In the centre sits the kitchenware and home products, followed by fresh produce and the delicatessen, with prepared foods beyond, and eateries on the fringe.

Hollis points abroad for the most exciting visions of what can be created around food retailing. ‘I think the design of the food halls of Les Galleries Lafayettes in Paris and Kadwe in Berlin are particularly inspirational,’ he says.

Top Ten Grocery Retailers’ percentage change in market share (2002-2003)

Growers
Tesco 1.4 per cent
Asda 0.6 per cent
Co-op 0.4 per cent
Morrison 0.3 per cent
M&S 0.1 per cent
Waitrose 0.1 per cent

Source: Verdict Analysis, January 2004

Shrinkers
Iceland -0.1 per cent
Sainsbury -0.1 per cent
Somerfield -0.1 per cent
Safeway -0.3 per cent

Source: Verdict Analysis, January 2004

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