Magazine article Management Today

Housekeeping?

Magazine article Management Today

Housekeeping?

Article excerpt

Britain's grocery bill this year will be somewhere in the region of 57[pounds] billion. Almost two-fifths of this now passes through the tills and checkouts of just three companies, Sainsbury, Tesco and Argyll (the parent of Safeway and Presto), which, for decades, have been steadily honing their management skills, slowly but inexorably improving their profit margins and extending their grip on the nation's housekeeping money. Throughout the recent recession they have continued to expand, refurbish and open new outlets, with an ever more dazzling and varied array of products and services. But suddenly doubts have set in. The stock market is awash with fears about capital spending, market saturation, the real, long-term value of all that glittering real estate, the impact of a new, fast-growing breed of deep-discount, discount, no-frills food traders and, above all, about the possible outbreak of a cut-throat price war.

In the first nine months of 1993, while most shares quoted in London were rising to all-time peaks, the prices for these three stocks, on average, dropped by almost 30%. Then, after a brief recovery in October, came the news that they had failed in a joint High Court bid to block the British invasion plans of Costco, the most aggressive of the super discounting US warehouse clubs. The City responded by knocking a straight 800[pounds] million off their collective market capitalisation almost overnight; and worse was still to come. In November, Sainsbury announced that tightening competition had persuaded it to cut prices on no fewer than 300 of its basic own-label products. The resulting jitters, which happened to coincide with a near-global |correction' in equity share levels overall, promptly trimmed the big grocers' own joint market price-tag by a further 1.2[pounds] billion. So was Archie Norman, the chief executive of Asda -- one of the most respected of their rivals -- right when he warned earlier this summer that |the halcyon days are over'?

It is not hard, particularly in the south of England, to collect what appears to be good anecdotal evidence of over-saturation. Within easy walking distance of my own front door in north west London there is a Safeway, a large Sainsbury and what turned out to be the prototype of Marks & Spencer's all-food stores. Five minutes driving adds two more Safeways, a second Sainsbury, a Gateway, a John Lewis's Waitrose, and an Eastern Electricity depot site where Tesco plans to join battle next year. And extending the radius by an extra couple of miles brings in several more of the same, plus at least three additional Tescos and an Asda. Where do all the customers -- who clog up the aisles with their trolleys and make bill-paying a time-wasting agony -- come from?

To answer that, and assess its relevance -- if any -- to the future of the leading UK food retailers, it is necessary to delve deeply into the geographical and competitive realities of what is both an immensely complex and a little understood area of business activity. There can hardly be a more diversely-served sector of the economy -- the players range from the immensely strong to the weakest of the weak. Any generalisation based on superficial perceptions is almost certain to be wildly wrong. In many of Britain's 2,600 postal districts, for example, it is tempting to believe that there is already an established superstore on virtually every significant street comer. For some places this is almost literally true -- at Sutton, in Surrey, close to the core of the Sainsbury heartland, and at Stevenage, on Tesco's corporate doorstep, these two, together with Safeway, now control well over 40% of all the available selling space and are probably responsible for close to 70% of all the produce and household cleaning equipment sold locally. That is true saturation (though even there the rivals have so far been able to co-exist without much visible sign of cut-throat price-slashing). But this is very much the exception. …

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