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Grocery Retailers - United Kingdom

Euromonitor International : Category Briefing May 2011

Grocery Retailers

United Kingdom

List of Contents and Tables


Headlines ................................................................................................................................................................. 1 Trends ...................................................................................................................................................................... 1 Traditional Vs Modern ........................................................................................................................................... 2 Channel Formats ..................................................................................................................................................... 2 Chart 1 Modern Grocery Retailing: Tesco Extra ............................................................................ 3 Chart 2 Modern Grocery Retailing: Waitrose, London .................................................................. 3 Chart 3 Modern Grocery Retailing: Sainsburys, London .............................................................. 4 Chart 4 Modern Grocery Retailing: The Co-Operative .................................................................. 4 Chart 5 Modern Grocery Retailing: Spar ....................................................................................... 5 Chart 6 Modern Grocery Retailing: Morrisons............................................................................... 6 Chart 7 Modern Grocery Retailing: Morrisons in East Anglia ....................................................... 7 Competitive Landscape .......................................................................................................................................... 8 Prospects .................................................................................................................................................................. 9 Channel Data ........................................................................................................................................................... 9 Table 1 Sales in Grocery Retailing by Category: Value 2005-2010 ............................................... 9 Table 2 Sales in Grocery Retailing by Category: % Value Growth 2005-2010.............................. 9 Table 3 Grocery Retailers Company Shares: % Value 2006-2010 ................................................10 Table 4 Grocery Retailers Brand Shares: % Value 2007-2010 ......................................................10 Table 5 Forecast Sales in Grocery Retailing by Category: Value 2010-2015................................11 Table 6 Forecast Sales in Grocery Retailing by Category: % Value Growth 20102015 ..................................................................................................................................11

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Grocery Retailers

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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 largest grocery retailer in the UK The number of outlets declines by 1% in 2010, largely due to the closure of a number of food/drink/tobacco specialists 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 expansion of 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 increasing popularity 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 sales in 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 its Waitrose 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 to compete 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 being introduced 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 the non-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 Retail Consortium 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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Grocery Retailers

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The percentage of non-grocery sales through both supermarkets and hypermarkets increased by one percentage 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 and those 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, and took 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 the US. 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 to the 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, whose sharing 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 large chains. The category as a whole faces increasingly aggressive competition from supermarkets, which are improving 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, and healthfood 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 retailers have 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 similar size 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 from foreign manufacturers.

CHANNEL FORMATS
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Grocery Retailers

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Chart 1

Modern Grocery Retailing: Tesco Extra

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Chart 2

Modern Grocery Retailing: Waitrose, London

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Chart 3

Modern Grocery Retailing: Sainsburys, London

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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 its nearest 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 one percentage 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 slight increase 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 became increasingly saturated. All of the leading grocery retailers achieved similar levels of growth regardless of

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Grocery Retailers

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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 sales growth, 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, a rate 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 same place. 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% expected over 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 less than that for sales growth. Forecourt retailers is expected to decline despite the convenience trend, due to the expansion of convenience 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 those with 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 as independent 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 former expand 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 million 2005 Discounters Food/Drink/Tobacco Specialists Hypermarkets Small Grocery Retailers - Convenience Stores - Forecourt Retailers - Independent Small Grocers Supermarkets Other Grocery Retailers Grocery Retailers
Source:

Sales in Grocery Retailing by Category: Value 2005-2010

2006 3,237.4 11,132.1 55,748.0 25,373.7 14,289.0 3,833.7 7,251.0 26,078.3 2,088.0 123,657.4

2007 3,591.4 11,009.6 57,813.0 26,682.0 15,711.0 3,900.0 7,071.0 26,056.7 2,047.1 127,199.8

2008 4,168.2 10,476.3 60,754.0 27,685.9 16,760.0 3,997.0 6,928.9 27,664.4 2,002.8 132,751.5

2009 4,509.5 10,257.3 63,014.0 28,315.5 17,474.0 4,088.0 6,753.6 28,981.1 1,966.1 137,043.6

2010 4,942.9 10,161.3 65,045.0 28,743.0 17,976.0 4,172.8 6,594.2 29,955.3 1,937.4 140,785.0

2,955.7 11,270.7 52,466.0 24,204.5 13,011.0 3,732.5 7,461.0 26,178.0 2,129.0 119,203.9

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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Grocery Retailers

United Kingdom

% current value growth 2009/10 Discounters Food/Drink/Tobacco Specialists Hypermarkets Small Grocery Retailers - Convenience Stores - Forecourt Retailers - Independent Small Grocers Supermarkets Other Grocery Retailers Grocery Retailers
Source:

2005-10 CAGR 10.8 -2.1 4.4 3.5 6.7 2.3 -2.4 2.7 -1.9 3.4

2005/10 TOTAL 67.2 -9.8 24.0 18.8 38.2 11.8 -11.6 14.4 -9.0 18.1

9.6 -0.9 3.2 1.5 2.9 2.1 -2.4 3.4 -1.5 2.7

Euromonitor International from official statistics, trade associations, trade press, company research, trade interviews, trade sources

Table 3

Grocery Retailers Company Shares: % Value 2006-2010

% retail value rsp excl sales tax Company Tesco Plc Asda Stores Ltd J Sainsbury Plc Wm Morrison Supermarkets Plc Co-operative Group Ltd, The Waitrose Ltd Spar Ltd (UK) Iceland Frozen Foods Ltd Lidl Ltd Musgrave Group Plc Aldi Stores Ltd Marks & Spencer Plc Somerfield Ltd NISA-Today's (Holdings) Ltd Martin McColl Ltd Greggs Plc Booker Ltd Costcutter Supermarkets Group Ltd Holland & Barrett Retail Ltd Farmfoods Ltd Netto Foodstores Ltd First Quench Retailing Ltd Kwik Save Group Plc Others Total
Source:

2006 23.9 11.6 12.0 8.7 2.4 2.6 1.9 1.0 1.1 1.6 1.0 0.8 2.9 0.8 0.5 0.4 0.4 0.4 0.2 0.3 0.5 0.6 0.4 23.8 100.0

2007 23.9 12.1 11.9 8.8 2.9 2.7 1.9 1.3 1.2 1.5 1.1 1.0 2.8 0.8 0.5 0.5 0.4 0.4 0.3 0.3 0.5 0.7 22.4 100.0

2008 24.3 12.4 11.5 9.1 3.4 2.8 2.0 1.4 1.2 1.4 1.3 1.1 2.6 0.9 0.5 0.5 0.4 0.4 0.3 0.3 0.6 0.6 21.0 100.0

2009 24.2 12.8 11.5 9.6 3.5 3.0 2.1 1.6 1.4 1.5 1.3 1.2 2.0 0.8 0.5 0.5 0.4 0.4 0.3 0.3 0.5 0.4 20.3 100.0

2010 24.8 13.3 11.8 10.0 3.9 3.1 2.1 1.7 1.6 1.5 1.4 1.3 1.0 0.7 0.5 0.5 0.5 0.4 0.3 0.3 19.2 100.0

Euromonitor International from official statistics, trade associations, trade press, company research, trade interviews, trade sources

Table 4

Grocery Retailers Brand Shares: % Value 2007-2010

% retail value rsp excl sales tax Brand Company Asda Asda Stores Ltd

2007 12.1

2008 12.4

2009 12.8

2010 12.7

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Sainsbury's Tesco Extra Morrisons Tesco Superstore Waitrose Tesco Express The Co-operative Spar Iceland Lidl Tesco Metro Co-op Aldi Simply Food Somerfield Londis Nisa-Today's Tesco One Stop Netto Threshers Others Total
Source:

J Sainsbury Plc Tesco Plc Wm Morrison Supermarkets Plc Tesco Plc Waitrose Ltd Tesco Plc Co-operative Group Ltd, The Spar Ltd (UK) Iceland Frozen Foods Ltd Lidl Ltd Tesco Plc Co-operative Group Ltd, The Aldi Stores Ltd Marks & Spencer Plc Somerfield Ltd Musgrave Group Plc NISA-Today's (Holdings) Ltd Tesco Plc Asda Stores Ltd First Quench Retailing Ltd

11.9 9.3 8.8 10.9 2.7 1.8 1.9 1.3 1.2 1.2 2.9 1.1 1.0 2.8 1.0 0.8 0.6 0.7 25.8 100.0

11.5 9.8 9.1 10.8 2.8 2.0 2.0 1.4 1.2 1.2 3.3 1.3 1.1 2.6 0.8 0.9 0.6 0.6 24.6 100.0

11.5 10.1 9.6 10.0 3.0 2.2 1.1 2.1 1.6 1.4 1.3 2.4 1.3 1.2 2.0 0.9 0.8 0.6 0.4 23.9 100.0

11.8 10.4 10.0 9.9 3.1 2.5 2.4 2.1 1.7 1.6 1.4 1.4 1.4 1.3 1.0 0.9 0.7 0.6 0.6 22.4 100.0

Euromonitor International from official statistics, trade associations, trade press, company research, trade interviews, trade sources

Table 5 million

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

2010 Discounters Food/Drink/Tobacco Specialists Hypermarkets Small Grocery Retailers - Convenience Stores - Forecourt Retailers - Independent Small Grocers Supermarkets Other Grocery Retailers Grocery Retailers
Source:

2011 5,350.6 9,838.2 66,377.6 28,765.7 18,237.0 4,169.2 6,359.5 30,093.1 1,888.7 142,314.0

2012 5,731.6 9,561.8 67,831.3 28,865.8 18,600.0 4,136.2 6,129.6 30,003.6 1,842.7 143,836.8

2013 6,076.6 9,363.8 69,086.2 29,042.9 19,023.0 4,098.2 5,921.6 29,668.3 1,824.1 145,061.9

2014 6,390.2 9,190.6 70,136.3 29,367.0 19,579.0 4,050.9 5,737.0 29,426.9 1,814.9 146,325.9

2015 6,694.4 9,055.5 70,865.7 29,752.2 20,185.0 3,992.7 5,574.5 29,305.7 1,812.3 147,485.7

4,942.9 10,161.3 65,045.0 28,743.0 17,976.0 4,172.8 6,594.2 29,955.3 1,937.4 140,785.0

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 growth 2010-15 CAGR Discounters Food/Drink/Tobacco Specialists Hypermarkets Small Grocery Retailers - Convenience Stores - Forecourt Retailers - Independent Small Grocers Supermarkets 6.3 -2.3 1.7 0.7 2.3 -0.9 -3.3 -0.4 2010/15 TOTAL 35.4 -10.9 8.9 3.5 12.3 -4.3 -15.5 -2.2

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Other Grocery Retailers Grocery Retailers


Source:

-1.3 0.9

-6.5 4.8

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