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Consolidation re-shapes
UK retailing
- 29 Sep 2004
Author: Raphael Moreau In
2004, the competitive environment in the UK retail market has experienced a dramatic
re-shape. This re-shape has been led by the acquisition of the Safeway supermarket
chain by Morrisons, which has created the country’s fourth biggest retailer
and has given Morrisons the chance to pose a real threat to Sainsbury’s,
in the fight for third place behind the UK’s biggest retailers, Tesco and
Asda. According
to new research analysing the Retailing industry in the UK by Euromonitor International,
the move towards greater consolidation will continue to impact the UK retail industry
over the next five years. Euromonitor suggests that future mergers and acquisitions
in UK food retailing are likely both to be on a smaller scale and to involve the
take-over of convenience retailers by hypermarket chains wishing to strengthen
their presence in the UK’s high streets. Raphael
Moreau, Retailing Analyst at Euromonitor International, comments "Diversifying
into convenience stores is on the agenda for the UK’s top hypermarket chains
because this retail format offers good growth prospects. At Euromonitor International
we have seen that convenience stores have increased their share of the UK food
retailing market from 20% to 21.9% between 1999 and 2003. Clearly these stores
are appealing to UK consumers, thanks to their convenient locations and extended
opening hours. Hypermarket retailers want to make sure they don’t miss out
on this growing area of the UK market." High
Street convenience stores are also particularly attractive to hypermarket retailers,
due to strict planning rules restricting the opening of new out-of town hypermarkets.
It is for this reason that both Tesco and Sainsbury’s have focused on developing
their Tesco Express/Tesco Metro and Sainsbury’s Central fascias. Euromonitor
International believes that this trend is likely to intensify in the next five
years, though Asda is unlikely to participate, as this trend would not fit the
group’s current strategy. The Competition Commission, which considers convenience
retailing to be a separate sector from supermarket retailing, has also encouraged
this trend, since supermarket chains can diversify into convenience retailing
without facing enquiries from the Commission about the market’s level of
concentration Hypermarkets,
whose market share increased from 12.1 % in 1999 to 16.5% in 2004 according to
Euromonitor International, will continue to grow their share of the UK market
by focusing on non-food products and by continuing their price reduction strategies.
Euromonitor has found that hypermarkets are already competing against mixed retailers
and non-food specialists by expanding their range of products beyond food items,
to focus on products such as clothes, electricals, homeware and household goods,
which offer greater margins. This is particularly well illustrated by the strategies
of Tesco and Asda, who continue to allocate more outlet space to non-food products. Euromonitor
believes that Tesco and Asda, who increased their combined market share from 12.6%
of total retail sales in 2002 to 13.8% in 2003, largely thanks to their high profile
advertising campaigns focused on price reductions, will be joined by Morrisions
in the UK supermarket "price wars". The intensification of competition
on price will therefore be a key trend to look out for in 2005. More
moderate growth of retail sales
Looking
to the future, Euromonitor International’s latest research forecasts that
UK retail sales will increase by just over 11% in real terms between 2004 and
2008, a moderate increase resulting from strong downward pressure on prices, especially
within food retailing, combined with rising interest rates leading to higher debt
levels. This would represent a slowdown compared to the strong performance recorded
in 2003 and 2004, of 3.8% and 3% respectively, even though growth could be maintained
by the dynamism of convenience stores/small grocers. | 
