For all the talk of retailers switching their attention away from new build supermarkets to revamps, there’s still plenty of expansion in the pipeline this year.
The big four have each announced new store opening programmes for 2012, collectively adding 4.8 million sq ft, or 160 standard supermarkets. But with other retailers in the top 10 also announcing ambitious new store openings or acquisitions, how does this all add up in a mature, stagnant market?
History tells us that for the top retailers to continue growing market share, one or more of the top 10 retailers has to struggle or be “gobbled up”. We have all played supermarket bingo over the past 25 years - Safeway, Fine Fare, William Low, Hillards, Keymarkets, Somerfield and many more. Without these acquisitions none of the top retailers would be where they are today.
A report by a leading retail analyst says supermarkets are setting themselves up for a collapse in profitability. With additions to capacity continuing, the suggestion is that the retail sector is facing the prospect of significant negative like-for-like sales and even worse like-for-like volume losses, which would be unprecedented in the UK. Supermarket groups argue that planning regulations reduce profitability and raise consumer prices, and one cited data showing that the level of supermarket space per person is about a third of that in the US, so there is scope for further expansion in the UK. I’m not sure US retailing can teach much to UK retailers when it comes to net profitability.
There is a warning for suppliers and manufacturers here - I can just imagine the discussions that will take place with retailers. “New stores are very expensive and as we are giving you growth, perhaps you could contribute? Let’s call it a collaborative investment programme.”
Of course, investing in new stores and refits is crucial, but here’s another thought. Are the day-to-day operations of existing stores as good as they should be? After all, it is the profitability of those shops that pay for the capital investment programmes.
Consumers and suppliers constantly gripe about poor in-store availability, especially on promotions, but I don’t blame store staff for this - running a supermarket is tough! All the initiatives, promotional changeovers, launches, training and so on go into the same, single funnel that sits on top of the manager’s head. It is no wonder things go wrong!
Perhaps investing more in operational excellence would mean I wouldn’t have to visit three stores to find a product I saw on TV. On the bright side, even before the 2012 development programme, at least the stores are all close together!