Grocery Retailer Uk

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Grocery Retailers - United Kingdom

Euromonitor International : Category Briefing

May 2011


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Grocery Retailers United Kingdom

Euromonitor International Page i

List of Contents and Tables

Headlines ................................................................................................................................................................. 1Trends ...................................................................................................................................................................... 1

Traditional Vs Modern ........................................................................................................................................... 2Channel Formats ..................................................................................................................................................... 2

Chart 1 Modern Grocery Retailing: Tesco Extra ............................................................................ 3Chart 2 Modern Grocery Retailing: Waitrose, London .................................................................. 3Chart 3 Modern Grocery Retailing: Sainsburys, London .............................................................. 4Chart 4 Modern Grocery Retailing: The Co-Operative .................................................................. 4Chart 5 Modern Grocery Retailing: Spar ....................................................................................... 5Chart 6 Modern Grocery Retailing: Morrisons............................................................................... 6Chart 7 Modern Grocery Retailing: Morrisons in East Anglia ....................................................... 7

Competitive Landscape .......................................................................................................................................... 8Prospects .................................................................................................................................................................. 9Channel Data ........................................................................................................................................................... 9

Table 1 Sales in Grocery Retailing by Category: Value 2005-2010 ............................................... 9Table 2 Sales in Grocery Retailing by Category: % Value Growth 2005-2010 ..................... ......... 9Table 3 Grocery Retailers Company Shares: % Value 2006-2010 ................................................10Table 4 Grocery Retailers Brand Shares: % Value 2007-2010 ......................................................10Table 5 Forecast Sales in Grocery Retailing by Category: Value 2010-2015 .................... ............11Table 6 Forecast Sales in Grocery Retailing by Category: % Value Growth 2010-

2015 ..................................................................................................................................11


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Euromonitor International Page 1

GROCERY RETAILERS IN THE UNITED KINGDOM

HEADLINES

Grocery retailing in the UK increases by 3% in 2010, reaching 138.1 billion

Purchase of Netto enables Wal-Mart owned Asda Stores Ltd to cement its place as the second largestgrocery retailer in the UK

The number of outlets declines by 1% in 2010, largely due to the closure of a number of food/drink/tobaccospecialists and independent small grocers

Tesco maintains and further increases its lead in grocery retailing in 2010

Grocery retailing is expected to increase by a CAGR of 1% over the forecast period in constant value terms,as strong growth will be difficult to achieve in an increasingly saturated market

TRENDS Inflation has remained surprisingly high in the UK, with the consumer price index remaining above 3% for

much of 2010. The high level of inflation had a significant impact on grocery retailing, especially in the

second half of 2010. According to the British Retail Consortium, food price inflation was at a 15 month

high in September 2010. One of the main drivers of this was an increase in wheat and oil prices.

Hypermarkets is the biggest channel in grocery retailing in the UK, accounting for sales worth 65 billion,46% of all sales within grocery retailing. Although the channel is not strongly associated with grocery

retailing in the UK, given the historic strength of supermarkets in the country, grocery retailers expansionof existing stores, which has seen them move from supermarkets to hypermarkets, or the building of larger

out-of-town stores, has seen the channel come to dominate grocery retailing in the UK.

Hypermarkets performed well in 2010, growing by 3% in current value terms, making it the third fastest

growing channel in grocery retailing. Hypermarkets pace of value growth was due to the increasingpopularity of one stop shops, where consumers can buy products ranging from food to big-ticket

electrical items. Retailers have taken advantage of this growing consumer acceptance through widening the

range of non-food products they stock, with Tesco having already taken this step, but Sainsburys looking

to close the gap between it and Tesco during 2011 by committing to add new selling space solely for the

addition of new non-food ranges. Consumers are willing to make a designated shopping trip to find a wide

range of products at competitive prices, as hypermarkets are usually located in out-of-town locations. This

point became even more important during the difficult economic conditions of 2010, when for a large

number of consumers price became a very important part of their decision making during their buying

process.

Supermarkets is the second biggest channel in grocery retailing, accounting for a further 21% of value salesin 2010. The channels size is largely due to the gigantic size of Tesco, which is the UKs leading retailer,

but with strong support coming from Wm Morrison Supermarkets, John Lewis Partnership (with itsWaitrose banner) and the Co-operative Group. However, as noted above, many grocery retailers are

continuing to increase the size of their stores, with more supermarkets migrating into the hypermarkets

channel as a result.

Discounters was the fastest growing channel in current value terms in 2010, as these outlets continued tocompete with low-end supermarkets and discount variety stores. These outlets appealed to price-conscious

consumers aiming to economise due to fears of a double-dip recession, and austerity measures beingintroduced by the new Conservative government. Despite the channels growth in 2010, discounters

accounted for just 4% of value sales within grocery retailing in the UK and, therefore, this channel does not

have the same impact as it does in other Western European markets.

Supermarkets increased by 3% in current value terms in 2010, as it benefited from the expansion of thenon-grocery offering, especially in clothing, which has been a focus area for retailers for a number of years.

Although all supermarkets offer value clothing, sales were boosted by price increases, as the British RetailConsortium also stated that clothing and footwear prices were at a five month high in September 2010,

mainly due to rises in cotton prices.


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The percentage of non-grocery sales through both supermarkets and hypermarkets increased by onepercentage point in 2010. A non-grocery offering helps to increase customer loyalty, as consumers know

they can get everything they need under one roof. Tesco in particular capitalised on this through offering a

very large number of points on its loyalty card for purchases of big-ticket items such as furniture.

Convenience stores increased by 3% in current value terms in 2010, as the leading grocery retailers focused

on expanding their convenience stores fascias. Convenience stores appeal to time-pressed consumers andthose working in city centres, where there is usually a large number stores of this format. If stores are part

of a leading chain, such as Tesco or Sainsburys, consumers also benefit from being able to collect points

when making small regular purchases.

Chained forecourt retailers also benefited from the leading grocery chains focusing on smaller formats, andtook share from independent forecourt retailers, which struggled to compete on price. A large proportion of

chained forecourt retailers also have the advantage of being linked to a supermarket chain, so they have a

regular flow of customers purchasing petrol, in addition to small items they may have forgotten after their

regular shopping trip.

The Big Four grocery retailers are all British companies, apart from Asda, owned by Wal-Mart from theUS. The majority of grocery retailers in all channels are British, as this is the largest and most important

channel in the retail market in the UK. International retailers have had to adapt by focusing on private label,

which is extremely important in the UK, and by providing products to which UK consumers are

accustomed.

Small grocery retailers increased by 1% in current value terms in 2010, but this growth was solely due tothe convenience stores and forecourt retail arms of large grocery chains. Independent small grocers and

independent forecourt retailers declined by 2% and 1% respectively in current value terms in 2010, as they

struggled to compete on price and product range, and therefore could not benefit from economies of scale.

Independent small grocers have been put under increasing pressure as branded retailers have looked to build

ever smaller stores on the countrys shopping streets. This has encouraged some to relinquish their

independence and seek shelter as part of a symbol group, such as Nisa Today, Costcutter or Spar, whosesharing of a similar fascia and pooling of buying power enables operators of such stores to compete better

on price.

Alcoholic drinks stores forms the largest part of food/drink/tobacco specialists, as there a number of largechains. The category as a whole faces increasingly aggressive competition from supermarkets, which areimproving their premium and niche food and drink offering. The latter has been a key focus for specialist

drinks retailers in recent years, as supermarkets cannibalised their sales of lower-cost items with widespread

promotions over the recession, forcing more specialists to look to premium offerings to differentiate

themselves. However, despite these changes the bankruptcy of First Quench Retailing, which operated the

Threshers brand, underlined how pressures remain and sales growth continues to be difficult to come by.

Retailers within other grocery retailers are, for example, the UKs largest newsagent, Martins, andhealthfood and drug store Holland and Barrett. The channel declined by 1% in current value terms in 2010,

as these types of retailers struggled to compete with the ever expanding product portfolio and convenience

factor of the leading grocery chains, especially with these chains expanding their presence even further with

smaller fascias.

TRADITIONAL VS MODERN

Modern grocery channels are the most established in the UK, and continue to grow. Traditional retailershave struggled as small and independent chains struggled to compete with giants such as Tesco and

Sainsburys.

Convenience stores and forecourt retailers are a particular threat to traditional grocers, as they are a similarsize and are usually in the same location, but offer a wider range of products and lower prices. The

government has not introduced any measures to support traditional grocers, as larger chains are more

important to the UK economy. Traditional grocers are competing by introducing budget products fromforeign manufacturers.

CHANNEL FORMATS


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Chart 1 Modern Grocery Retailing: Tesco Extra

Source: Euromonitor International

Chart 2 Modern Grocery Retailing: Waitrose, London


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Chart 3 Modern Grocery Retailing: Sainsburys, London


Chart 4 Modern Grocery Retailing: The Co-Operative


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Chart 5 Modern Grocery Retailing: Spar


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Chart 6 Modern Grocery Retailing: Morrisons


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Chart 7 Modern Grocery Retailing: Morrisons in East Anglia


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COMPETITIVE LANDSCAPE

Tesco maintained its significant lead in grocery retailers with a 25% share in 2010, nearly double that of itsnearest rival in grocery retailing, Asda Stores. Tesco expanded its store portfolio despite its huge size, and

its non-grocery division performed well. It was also the retailer which gained the most share in grocery

retailing in 2010. Somerfield was the retailer to lose the most ground, as its share declined by onepercentage point, as stores continued to be rebranded to The Co-operative after the takeover in 2008.

Asda Stores maintained its second position in grocery retailing with a 13% value share in 2010; a slightincrease compared with 2009. Asdas purchase of Netto enabled it to become a player in the discounters

channel, albeit for a short time only. Since the takeover of Netto, Asda has announced plans to widen the

range of products that the stores carry, a move that will see the old Netto estate moved from discounters and

into supermarkets.

J Sainsbury also experienced further sales growth, and a slight rise in its share of grocery retailing in 2010.Its focus, in line with that of its major competitors, was on continued store and product range expansion. In

2010, J Sainsbury invested in overhauling its Taste the Difference range, introducing a vast number of lines

to the range, including products it considers to be of restaurant quality, enabling the company to leverage

consumer trends towards more entertaining at home and eating out less, and bringing its offering in this area

more in line with competitors such as Marks & Spencer and Waitrose.

Sales of high-end supermarket Waitrose were robust in 2010, despite its premium product range. However,it continued to benefit from its low-priced Waitrose Essentials range, launched in 2009, and it introduced a

Tesco price match for over 1,000 branded products. Discounters nevertheless experienced the strongest

growth, which showed that price was the main priority for a large proportion of consumers.

Large grocery retailers such as hypermarkets expanded into out-of-town locations, as supermarkets becameincreasingly saturated. All of the leading grocery retailers achieved similar levels of growth regardless of


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whether they were UK-based or international, even though Asda was the only non-UK based grocery

retailer out of the top five grocery chains. There were no new entrants to the channel in 2010.

PROSPECTS

Over the forecast period the continued expansion of discounters will be an important factor driving salesgrowth, especially if the economic recession continues into the longer term. It is expected to be the fastest

growing channel, with a constant value CAGR of 6% in the forecast period.

However, hypermarkets will account for the largest amount of value sales added in the forecast period, arate of expansion that will see it extend the lead it holds over the supermarket channel. Hypermarkets will

continue to benefit as consumers become more accustomed to buying all types of products in the sameplace. These outlets will also benefit from offering lower prices on big-ticket items such as furniture than

specialist chains.

Convenience stores will also continue to grow in popularity, with a constant value CAGR of 2% expectedover the forecast period. These outlets appeal to increasingly time-pressed consumers, who are able to delay

the lengthy regular shop by purchasing basic necessities from convenience stores. New stores will help

drive sales growth within the forecast period, with store numbers set to grow by a CAGR of 2%, just lessthan that for sales growth.

Forecourt retailers is expected to decline despite the convenience trend, due to the expansion ofconvenience stores, which will make it less necessary for consumers to purchase impulse buys or top-ups to

their main shop at forecourt retailers.

Independent small grocers will continue to struggle to compete with lower-priced retailers, especially thosewith extensive expansion plans, such as discounters. The channel will also lose sales as independents

convert to convenience stores, as struggling stores will join the numerous franchise groups, such as Booker.

Food/drink/tobacco specialists and other grocery retailers are expected to suffer the same fate asindependent small grocers over the forecast period, with negative constant value CAGRs of 2% and 1%

respectively. They are generally not able to compete with the low prices of supermarkets, and as the formerexpand into niche food areas such as Fairtrade, they pose a particular threat to food and drink specialists.

Other grocery retailers, such as Holland and Barrett, will also struggle, as they lose share to supermarkets

which offer more competitive prices for the majority of their products, such as health food.

CHANNEL DATA

Table 1 Sales in Grocery Retailing by Category: Value 2005-2010

million2005 2006 2007 2008 2009 2010

Discounters 2,955.7 3,237.4 3,591.4 4,168.2 4,509.5 4,942.9

Food/Drink/Tobacco 11,270.7 11,132.1 11,009.6 10,476.3 10,257.3 10,161.3Specialists

Hypermarkets 52,466.0 55,748.0 57,813.0 60,754.0 63,014.0 65,045.0Small Grocery Retailers 24,204.5 25,373.7 26,682.0 27,685.9 28,315.5 28,743.0- Convenience Stores 13,011.0 14,289.0 15,711.0 16,760.0 17,474.0 17,976.0- Forecourt Retailers 3,732.5 3,833.7 3,900.0 3,997.0 4,088.0 4,172.8- Independent Small 7,461.0 7,251.0 7,071.0 6,928.9 6,753.6 6,594.2

GrocersSupermarkets 26,178.0 26,078.3 26,056.7 27,664.4 28,981.1 29,955.3Other Grocery Retailers 2,129.0 2,088.0 2,047.1 2,002.8 1,966.1 1,937.4Grocery Retailers 119,203.9 123,657.4 127,199.8 132,751.5 137,043.6 140,785.0Source: Euromonitor International from official statistics, trade associations, trade press, company research, trade

interviews, trade sources

Table 2 Sales in Grocery Retailing by Category: % Value Growth 2005-2010


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% current value growth2009/10 2005-10 CAGR 2005/10 TOTAL

Discounters 9.6 10.8 67.2Food/Drink/Tobacco Specialists -0.9 -2.1 -9.8

Hypermarkets 3.2 4.4 24.0Small Grocery Retailers 1.5 3.5 18.8- Convenience Stores 2.9 6.7 38.2- Forecourt Retailers 2.1 2.3 11.8- Independent Small Grocers -2.4 -2.4 -11.6Supermarkets 3.4 2.7 14.4Other Grocery Retailers -1.5 -1.9 -9.0Grocery Retailers 2.7 3.4 18.1Source: Euromonitor International from official statistics, trade associations, trade press, company research, trade


Table 3 Grocery Retailers Company Shares: % Value 2006-2010

% retail value rsp excl sales taxCompany 2006 2007 2008 2009 2010

Tesco Plc 23.9 23.9 24.3 24.2 24.8Asda Stores Ltd 11.6 12.1 12.4 12.8 13.3J Sainsbury Plc 12.0 11.9 11.5 11.5 11.8Wm Morrison 8.7 8.8 9.1 9.6 10.0

Supermarkets PlcCo-operative Group Ltd, 2.4 2.9 3.4 3.5 3.9

TheWaitrose Ltd 2.6 2.7 2.8 3.0 3.1Spar Ltd (UK) 1.9 1.9 2.0 2.1 2.1Iceland Frozen Foods Ltd 1.0 1.3 1.4 1.6 1.7Lidl Ltd 1.1 1.2 1.2 1.4 1.6

Musgrave Group Plc 1.6 1.5 1.4 1.5 1.5Aldi Stores Ltd 1.0 1.1 1.3 1.3 1.4Marks & Spencer Plc 0.8 1.0 1.1 1.2 1.3Somerfield Ltd 2.9 2.8 2.6 2.0 1.0NISA-Today's (Holdings) 0.8 0.8 0.9 0.8 0.7

LtdMartin McColl Ltd 0.5 0.5 0.5 0.5 0.5Greggs Plc 0.4 0.5 0.5 0.5 0.5Booker Ltd 0.4 0.4 0.4 0.4 0.5Costcutter Supermarkets 0.4 0.4 0.4 0.4 0.4

Group LtdHolland & Barrett 0.2 0.3 0.3 0.3 0.3

Retail LtdFarmfoods Ltd 0.3 0.3 0.3 0.3 0.3

Netto Foodstores Ltd 0.5 0.5 0.6 0.5 -First Quench Retailing 0.6 0.7 0.6 0.4 -Ltd

Kwik Save Group Plc 0.4 - - - -Others 23.8 22.4 21.0 20.3 19.2Total 100.0 100.0 100.0 100.0 100.0Source: Euromonitor International from official statistics, trade associations, trade press, company research, trade


Table 4 Grocery Retailers Brand Shares: % Value 2007-2010

% retail value rsp excl sales taxBrand Company 2007 2008 2009 2010

Asda Asda Stores Ltd 12.1 12.4 12.8 12.7


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Sainsbury's J Sainsbury Plc 11.9 11.5 11.5 11.8Tesco Extra Tesco Plc 9.3 9.8 10.1 10.4Morrisons Wm Morrison 8.8 9.1 9.6 10.0

Supermarkets PlcTesco Superstore Tesco Plc 10.9 10.8 10.0 9.9Waitrose Waitrose Ltd 2.7 2.8 3.0 3.1

Tesco Express Tesco Plc 1.8 2.0 2.2 2.5The Co-operative Co-operative Group Ltd, - - 1.1 2.4

TheSpar Spar Ltd (UK) 1.9 2.0 2.1 2.1Iceland Iceland Frozen Foods Ltd 1.3 1.4 1.6 1.7Lidl Lidl Ltd 1.2 1.2 1.4 1.6Tesco Metro Tesco Plc 1.2 1.2 1.3 1.4Co-op Co-operative Group Ltd, 2.9 3.3 2.4 1.4

TheAldi Aldi Stores Ltd 1.1 1.3 1.3 1.4Simply Food Marks & Spencer Plc 1.0 1.1 1.2 1.3Somerfield Somerfield Ltd 2.8 2.6 2.0 1.0Londis Musgrave Group Plc 1.0 0.8 0.9 0.9Nisa-Today's NISA-Today's (Holdings) 0.8 0.9 0.8 0.7

LtdTesco One Stop Tesco Plc 0.6 0.6 0.6 0.6Netto Asda Stores Ltd - - - 0.6Threshers First Quench Retailing Ltd 0.7 0.6 0.4 -Others 25.8 24.6 23.9 22.4Total 100.0 100.0 100.0 100.0Source: Euromonitor International from official statistics, trade associations, trade press, company research, trade


Table 5 Forecast Sales in Grocery Retailing by Category: Value 2010-2015

million2010 2011 2012 2013 2014 2015

Discounters 4,942.9 5,350.6 5,731.6 6,076.6 6,390.2 6,694.4Food/Drink/Tobacco 10,161.3 9,838.2 9,561.8 9,363.8 9,190.6 9,055.5

SpecialistsHypermarkets 65,045.0 66,377.6 67,831.3 69,086.2 70,136.3 70,865.7Small Grocery Retailers 28,743.0 28,765.7 28,865.8 29,042.9 29,367.0 29,752.2- Convenience Stores 17,976.0 18,237.0 18,600.0 19,023.0 19,579.0 20,185.0- Forecourt Retailers 4,172.8 4,169.2 4,136.2 4,098.2 4,050.9 3,992.7- Independent Small 6,594.2 6,359.5 6,129.6 5,921.6 5,737.0 5,574.5

GrocersSupermarkets 29,955.3 30,093.1 30,003.6 29,668.3 29,426.9 29,305.7Other Grocery Retailers 1,937.4 1,888.7 1,842.7 1,824.1 1,814.9 1,812.3Grocery Retailers 140,785.0 142,314.0 143,836.8 145,061.9 146,325.9 147,485.7Source: Euromonitor International from trade associations, trade press, company research, trade interviews, trade

sources

Table 6 Forecast Sales in Grocery Retailing by Category: % Value Growth 2010-2015

% constant value growth2010-15 CAGR 2010/15 TOTAL

Discounters 6.3 35.4Food/Drink/Tobacco Specialists -2.3 -10.9Hypermarkets 1.7 8.9Small Grocery Retailers 0.7 3.5- Convenience Stores 2.3 12.3- Forecourt Retailers -0.9 -4.3

- Independent Small Grocers -3.3 -15.5Supermarkets -0.4 -2.2


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Other Grocery Retailers -1.3 -6.5Grocery Retailers 0.9 4.8Source: Euromonitor International from trade associations, trade press, company research, trade interviews, trade

sources

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Grocery Retailer Uk