ANALYSIS: Supermarkets Spy Local Attraction

Marketing, February 5, 2004 | Go to article overview

ANALYSIS: Supermarkets Spy Local Attraction


Supermarkets have taken to purchasing convenience stores in a bid to increase their share of local 'top-up' buying, says Rachel Barnes.

Already dominant on the high street and in retail parks nationwide, the UK's major supermarket chains now have their sights set firmly on the corner shop market.

Tesco's pending pounds 54m acquisition of 45 Adminstore convenience outlets in some of the wealthiest parts of London has been followed by a mooted bid by Sainsbury's for TM Group, which operates 1200 stores, including the Forbuoys and Martins chains.

Add to the mix Tesco's pounds 377m acquisition of T&S's 800-plus stores in October 2002, and Co-op's purchase of Alldays from receivership the same year, and it's clear that the convenience - or 'top-up' - sector represents the latest strategy for supermarkets to extend their reach.

Planning problems

One reason why supermarkets have been eyeing up this market is the difficulty in buying ground for superstores. According to Verdict Research senior retail analyst Steve Gotham, planning restrictions are making it difficult to open stores.

Coupled with a change in lifestyle - consumers demanding convenient products to fit in with hectic timetables - it means the buoyant top-up stores have become prime targets.

Smaller players argue that a fragmented convenience sector means supermarkets tapping into the market could use their massive buying power to disadvantage rivals.

But in 2000, the Competition Commission decided that top-up shopping was entirely separate to consumers' weekly shop, and so the sectors were split into supermarkets and convenience stores.

This paved the way for recent takeovers, which have given Tesco a 6% share of that sector, despite already having more than 25% of the overall grocery market.

'Tesco has been aided in the pursuit of convenience stores by the competition authority's lenient approach,' says Gotham. 'It was extremely fortuitous when it acquired T&S. If that had happened after the Safeway takeover there would have been an investigation.' He believes that the law should be changed to consider both sectors as a single larger market.

Not surprisingly, Tesco is happy with the law and is confident that its Adminstore purchase will go through without a problem. …

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