Tesco must have seen strong potential in its new site in the Tynedale Retail Park in Hexham, Northumberland, because it paid three times the book value for the land.
The UK’s number one grocer paid a massive £17m for the eight-acre site, which was previously occupied by Robbs department store, which is being sold by Merchant Retail.
The store is an estimated 60,000 sq ft and should bring Tesco a significant turnover.
Tesco has traditionally been under-represented in the north of England but this aggressive opening, on the doorstep of a Safeway store, shows rivals that it is really prepared to invest in the region.
Currently Safeway and the Co-op enjoy dominant market share figures, together taking about 60% of the local grocery expenditure.
However, the new Tesco store is set to hit both of these retailers hard.
CACI’s analysis shows that the new Tesco will push its once small market share of about 3% to 55% to dominate the catchment.
This could halve the market share of the Co-op, cutting it from 29% to 15% and Safeway’s market share could collapse from 33% to 8%.
CACI’s analysis reveals that Safeway could lose a significant £374,000 a week across its four stores while the Co-op can expect to lose around £212,000 a week.
Aldi, with a significantly reduced market share, could also expect to lose £142,000.
And it is these potential huge revenue gains that would have justified the sum Tesco’s paid for this premium site.
Tesco should suffer some cannibalisation across its other two stores in the Hexham catchment, one of which is a Tesco Extra.
An examination of the catchment characteristics reveals that Waitrose would have been most suited to this part of the country, but it does not have any nearby stores.
The local population does not resemble a typical Aldi shopper which explains why Aldi’s market share is forecast by us to decline.
The profile that does suit the catchment is Safeway in its current form, but despite this strong correlation until it becomes Morrisons, Tesco, with only a slightly less accurate fit to the profile, should still do very well.
And for the future, the catchment profile of the area is less suited to Morrisons than to Safeway - which could play to Tesco’s advantage.
Tesco also has national plans to hit Safeway hard because it has begun a policy of accepting Safeway vouchers in any Tesco store.
This should be of benefit to the new Hexham store, helping to bring more local Safeway customers through the doors of Tesco’s.