Given the chance to ask a room full of convenience multiples, independents and suppliers any question at all, what would you ask? Spar MD Jerry Marwood gauged the mood of those present at the Insight/Srcg The Future of International Convenience Retailing conference when he somewhat pointedly asked: “How big a share of the market do you think Spar should have before it becomes anti-competitive?”
The greatest share of people - some 31% - replied that they didn’t care how much while 30% said a market share of 30% of over. But the day after Tesco announced yet another record profit, the sentiment behind the question was clear - alarm among delgates at the creeping acquisition of big box retailers with their enormous buying power combined with the ridiculous two-market approach of the OFT.
Tesco Convenience chief executive Colin Holmes did nothing to allay fears when he said the UK’s number one multiple would be opening its 600th Express store this month - an increase of 137 since a year ago.
Meanwhile, the conversion programme for One Stop is close to completion and the fascia is now “really starting to cook on gas”, said Holmes. Having reduced the number of One Stop fascias from 610 to 511 over the course of the year through conversion to Tesco Express, the strategy for One Stop would be expansion through acquisition, said Holmes. Tesco’s convenience operation is now getting nine million customers across the two fascias per week, he added.
But while independent retailing’s leaders step up the campaign for a new market review by the OFT, last week’s conference did highlight the fact that the likes of Tesco and Sainsbury are not the only ones that can, and are, prospering, in the convenience retailing sector. Marwood said: “The sales potential and market growth is one of the biggest opportunities I have ever seen.”
Musgrave Group chief executive Chris Martin acknowledged the big supermarkets’ dominance as the biggest threat to other convenience retailers, but he added that there was huge opportunity in the middle ground for “local independent retailers that are progressive”.
Andrew Thornton, managing director of specialist convenience consultancy Srcg, agreed. Srcg has modelled a different way of looking at the market, which he calls new convenience. This defines the market as five outlet types: big box convenience, new generation c-retailers, traditional c-retailers, high street, and food-for-now specialists.
Using a collection of data sources plus Srcg’s own knowledge and interpretation, it has been able to define basket spends for each of these channels.
Big box (eg Tesco Express format or top up in a Tesco supermarket) has a market size of £10.3bn; new generation (eg Musgrave Centra in Ireland or BP Connect) comes in at £9.3bn; while traditional - such as Spar, independents and Shell forecourts - has a market size of £18.9bn.
High street, such as top-up shopping in Boots or Woolworths, is just £0.4bn but food-for-now specialists (bakers, McDonald’s or Starbucks) come in at £13.3 billion.
Using this model the size of the overall market is £52.2bn.
Thornton says that there is plenty of scope for growth if you take this definition of the convenience channel, but operators need to have strategic clarity, develop their offer, truly collaborate with suppliers, improve capability and execute brilliantly.
“I think we have seen improvements over the past year in all these areas except for capability,” says Thornton. “There has been slow progress here at a time of more sophisticated competitors, more challenging categories - such as fresh and food to go - and more demanding shoppers.”
He says successful convenience retailers need to develop new skills and mindsets, for example moving from responding to shopper needs to creating shopper wants; from a buying-driven culture to a selling one; and from merely moving boxes to delighting shoppers.
Sainsbury already has this mindset, but according to convenience MD Jim McCarthy, there is still great opportunity in the sector for fresh and chilled foods, and health. But running a great convenience operation is ultimately down to great people, he told the conference. “The biggest challenge is getting people in store to do the right things all the time,” he said.
However, suppliers and retailers at the conference believed this was all beginning to change and nearly 80% said they thought execution in the convenience sector had improved over the past 12 months.