When Wal-Mart arrived in the UK having acquired ASDA, it created a new style. Helen Smith looks at how British supermarkets have dealt with the competition for market share.
When the US retailing giant Wal-Mart acquired ASDA in 1999, many thought Britain’s supermarket industry was about to be transformed forever.
Three years on, the public could be forgiven for not knowing that Wal-Mart had reached the UK. The US company’s fascia has appeared alongside ASDA’s, but in almost apologetic small-print, and only six ASDA-Wal-Mart Supercentres – the closest equivalent to the US Wal-Mart store – have been opened so far.
True, the British multiples are increasingly building up their non-grocery ranges, but this trend had begun long before the advent of Wal-Mart in the UK.
ASDA’s strong non-food business – most notably its highly-successful George range of clothing launched in 1990 by George Davies who had created the Next brand – was part of what made it such a natural fit for Wal-Mart.
Another reason that ASDA slotted so neatly into the Wal-Mart empire was that it had already built up a reputation for largescale budget shopping.
But although Wal-Mart was expected to use its immense buying power to launch an all-out price war in the UK, it has not done so: ASDA is generally accepted to be the cheapest overall of the supermarkets, but this is only by a narrow margin.
Analysts say Wal-Mart has been discouraged from embarking on a serious price cutting campaign in the UK by wholesale prices and property costs, which are much higher here than in the US.
The battle between the UK supermarkets for market share was underway when Wal-Mart arrived and the big four had begun building up their strength in non-grocery retailing, where the profit margins are bigger.
This meant the supermarkets needed ever more space to accommodate their growing product ranges. This is where the Wal-Mart formula has run into difficulties.
Wal-Mart, it seems, had not reckoned with Planning Policy Guidance Note Six (PPG 6), which, after 1996, effectively closed the door on any of the new large out-of-town developments that are the cornerstone of the Wal-Mart concept.
“Wal-Mart did research PPG 6 and ASDA’s property team did a lot of research on their behalf. What they did find difficult to understand is how regimented and difficult planning really is here,” says Chris Mackaness of GVA Grimley.
Guy Price of Cushman & Wakefield Healey & Baker agrees: “Wal-Mart’s expansion has been thwarted by the lack of sites and the lack of planning consent. If they had had the opportunities, they would have opened more stores,” he says.
Figures from Euromonitor show that the UK supermarkets had been expanding the size of their stores significantly since the early 1990s. The size of the average supermarket increased from 17,630 sq ft (1,638m2) in 1993 to 19,763 sq ft (1,836m2) in 1998, while the average hypermarket expanded from 42,777 sq ft (3,974m2) to 53,810 sq ft (4,999m2).
It wasn’t just the big four supermarket chains that were increasing their retail space. The Euromonitor figures show that all grocery retailers down to butchers, bakers and local dairies were expanding floor space, while the overall number of food outlets was shrinking rapidly in the face of competition from the multiples.
Despite PPG 6, the UK multiples are continuing to expand, both by extending existing stores and building new ones, with Tesco way out in front of the pack.
Of the 2m sq ft (185,800m2) of retail space acquired by the supermarkets last year, Tesco bought more than half, opening 55 new outlets, while Sainsbury’s and ASDA bought most of the remainder. Tesco currently has some 700 stores, to Safeway’s 480, Sainsbury’s 460 and ASDA’s 255.
Sainsbury’s, number two in the supermarket rankings and in the middle of a three-year recovery programme having languished during the mid to late 1990s, says it plans to open 40 new stores this financial year and is spending millions of pounds on extending existing outlets.
Sainsbury’s is also building up its non-food presence with the reinvigoration of its Savacentre stores, aimed at the budget shoppers who are ASDA’s natural customers. The format will include a non-grocery range, including household and electrical goods, Adams children’s clothing and a range of adult clothes from designer Jeff Banks. The first new Savacentre store opened in Birmingham in June and a further six are planned.
Safeway has recently formed a joint venture with London & Regional to look at ways of expanding its existing space and capitalising on it, with ventures such as creating office space above stores and on stilts over the car parks. Widely seen as the weakest of the big four, Safeway is planning to open six stores this year and 10 in 2003.
New openings
Four of those openings will be Safeway megastores, the chain’s Wal-Mart-style hypermarkets with a large proportion of non-grocery goods.
Tesco also has its “Extra” hypermarket format, where it has long since established a reputation for sourcing cheap designer goods, helped along by its high-profile court case with Levi’s last year – even though the multiple lost the case. Tesco is continuing to build up its clothing offer, with the help of former Arcadia boss John Hoerner, while expanding across a vast range of services, including selling loans, insurance and mortgages at the checkout. Tesco is said to be planning an internet-based car sales operation.
Wal-Mart ASDA, meanwhile, opened its sixth Supercentre – the biggest of its formats, and the only one to flag up the Wal-Mart brand, with a sales area of around 85,000 sq ft – in Eastlands in Manchester, where it anchors the Commonwealth games development. Wal-Mart ASDA says the store is “the largest, most contemporary store of its kind in Europe”.
But although the origins of the grand scale, one-stop shopping format that all of the big four are embracing could be traced back to Wal-Mart in the US, the Wal-Mart formula is only one element of the UK supermarket wars. The multiples are also looking to the other end of the retailing spectrum for growth.
Tesco and Sainsbury’s in particular are building up a number of smaller convenience formats, designed to capture the top-up shopper, while sitting more comfortably with planning regulations than the bigger stores.
Ian McDougal of Williams de Broe says it is the top two’s representation across a range of markets that is keeping them in their dominant positions.
Even Wal-Mart ASDA has around 30 small stores, including a new 17,000 sq ft (1,580m2) outlet in Walthamstow.
These small stores sit uncomfortably with the Wal-Mart ASDA ethos as outlined by company spokeswoman Naomi Duggan, who says: “Lower retailing costs are largely achieved through economies of scale.”
They are evidence that Wal-Mart is allowing ASDA to develop its own style in a market it knows far better than its parent. As ASDA’s annual sales continue to outperform the market average, Wal-Mart is expected to leave ASDA to its own devices.
|
Average retail sales area of food outlets by type |
||
|
All food sectors have increased floorspace – m2 |
||
|
1993 |
1998 |
|
|
Supermarkets |
1,638 |
1,836 |
|
Hypermarkets |
3,974 |
4,999 |
|
Cooperatives |
1,840 |
2,626 |
|
Independent grocers |
179 |
260 |
|
Convenience stores |
1,207 |
2,423 |
|
Voluntary chains/other affiliated retailers |
637 |
1,003 |
|
Food specialists Greengrocers |
138 |
202 |
|
Butchers |
158 |
235 |
|
Fishmongers |
146 |
220 |
|
Bakers |
182 |
269 |
|
Off-licences |
223 |
323 |
|
Dairies |
130 |
205 |
|
Overall average |
1,109 |
1,450 |
|
Source: Euromonitor |
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|
Number of food outlets by type |
||
|
Indexed growth 1993-1998 (1993=100) |
||
|
1994 |
1998 |
|
|
Supermarkets |
108.4 |
115.6 |
|
Hypermarkets |
127.9 |
147.0 |
|
Cooperatives |
92.8 |
69.2 |
|
Discounters |
113.3 |
96.4 |
|
Independent grocers |
96.2 |
73.4 |
|
Convenience stores |
94.5 |
98.9 |
|
Voluntary chains/other affiliated retailers |
101.2 |
99.4 |
|
Food specialist Greengrocers |
54.4 |
21.1 |
|
Butchers |
74.6 |
46.0 |
|
Fishmongers |
93.2 |
71.0 |
|
Bakers |
80.2 |
59.7 |
|
Off-licences |
109.8 |
130.7 |
|
Dairies |
65.5 |
14.0 |
|
Total |
96.5 |
87.1 |
|
Source: Euromonitor |
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