ANALYSIS: Supermarkets spy local attraction

Supermarkets have taken to purchasing convenience stores in a bid to increase their share of local 'top-up' buying, says Rachel Barnes.

Already dominant on the high street and in retail parks nationwide, the UK's major supermarket chains now have their sights set firmly on the corner shop market.

Tesco's pending £54m acquisition of 45 Adminstore convenience outlets in some of the wealthiest parts of London has been followed by a mooted bid by Sainsbury's for TM Group, which operates 1200 stores, including the Forbuoys and Martins chains.

Add to the mix Tesco's £377m acquisition of T&S's 800-plus stores in October 2002, and Co-op's purchase of Alldays from receivership the same year, and it's clear that the convenience - or 'top-up' - sector represents the latest strategy for supermarkets to extend their reach.

Planning problems

One reason why supermarkets have been eyeing up this market is the difficulty in buying ground for superstores. According to Verdict Research senior retail analyst Steve Gotham, planning restrictions are making it difficult to open stores.

Coupled with a change in lifestyle - consumers demanding convenient products to fit in with hectic timetables - it means the buoyant top-up stores have become prime targets.

Smaller players argue that a fragmented convenience sector means supermarkets tapping into the market could use their massive buying power to disadvantage rivals.

But in 2000, the Competition Commission decided that top-up shopping was entirely separate to consumers' weekly shop, and so the sectors were split into supermarkets and convenience stores.

This paved the way for recent takeovers, which have given Tesco a 6% share of that sector, despite already having more than 25% of the overall grocery market.

"Tesco has been aided in the pursuit of convenience stores by the competition authority's lenient approach," says Gotham. "It was extremely fortuitous when it acquired T&S. If that had happened after the Safeway takeover there would have been an investigation." He believes that the law should be changed to consider both sectors as a single larger market.

Not surprisingly, Tesco is happy with the law and is confident that its Adminstore purchase will go through without a problem. The market, it says, is big enough for everyone.

"There are 54,000 individual businesses in the market and it's a £21bn sector," says Tesco spokesman Jonathan Church. "If other companies continue to offer good prices and convenience, there will still be an awful lot of choice out there for consumers."

Integrating acquisitions

Tesco insists its acquisitions are not signs of a general trend for supermarkets to take control of the entire convenience market. Sainsbury's refuses to comment at all.

Convenience store takeovers have so far followed a pattern of leaving existing management and staff in place. But this places a question mark over how easily convenience chains operating under their own guidelines and culture can fall into line with a new set of values.

Tesco claims there is "no risk to the brand at all". It says that the proof lies in the "good job" that Adminstore's staff have done. "They will all be retrained so that they can talk about our different brands and they'll be brought into the Tesco model," says Church.

All the stores, which include the Europa, Harts and Cullens brands, will be renamed Tesco Express, offering fresh foods and convenience meals at, most importantly, lower prices. But how quickly and effectively this can be done will affect whether Tesco's presence is strengthened or its brand becomes diluted and compromised.

Judging by the speed of Tesco's conversion of T&S's One Stops since the acquisition 16 months ago (110 so far out of 450 selected for rebranding), Gotham believes a quick changeover is difficult. In his opinion, this is where the retailer's operational skills are put to the test. "Tesco must be able to offer consumers an experience of its brand, but it takes time to get it right."

TOP-UP TAKEOVERS

Supermarket brand Convenience store target No of stores

Musgrave and Londis circa 2000

Big Food Group

Sainsbury's TM Group - Forbuoys, Martins and McColls 1200

Tesco Adminstore - Europa, Harts and Cullens 45

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