This is shaping up to be an interesting year for U.K. grocers. Rising food prices and fragile consumer sentiment have resulted in one of the earliest and most aggressive price wars between Tesco and Asda, but 2011 will be about more than just price — it will be about offering value and driving innovation at the product and store levels.
We’ve already seen the introduction of some exciting, quality-driven retail formats: The aptly named Little Waitrose, which opened in South Kensington in January, is essentially all the things Waitrose does well (ready meals, fresh pastas, desserts) condensed into a 3,000-sq.-ft. retail space.
Convenience is a high-margin sweet spot for grocers — a trend Tesco recognized a decade ago when it acquired T&S — and is more relevant than ever. Not only are potential locations for larger sites drying up, but there is an opportunity to fill high street sites left vacant by banks, realtors, pubs and other retailers.
Longer term, there are a number of socio-economic factors that will continue to drive growth through smaller formats. Within the next 23 years, nearly one-quarter of the population is expected to be aged 65 or older: Clearly, this demographic will prefer proximity over bulk buying. And there are increasing numbers of cash-rich, time-poor consumers willing to pay a premium for the sake of convenience.
Despite broader economic gloom, Waitrose has been the star performer in the food sector. A focus on value (Essentials) and discovery (Heston Blumenthal) has struck a chord with consumers.
Another new concept is Sainsbury’s Fresh Kitchen. Located on Fleet Street, the grocer’s first food-to-go outlet is smaller than the average Sainsbury’s Local. The pricing is competitive — sandwiches range from $2.16 to $5.44 — and it aims to take share from chains like Pret and Eat. Sainsbury’s is reported to believe there is the potential for 1,000 such units.
This year we say goodbye to Somerfield and Netto, but Asda and Morrisons are expected to launch smaller formats by summer. Both should do quite well due to recent improvements in food quality — particularly in the case of Asda, which has done wonders by revamping its private label food line. Asda, however, will need to up its game in perishables, and will naturally be set back due to the fact that the sites acquired from Netto are primarily secondary locations targeting lower-income consumers.
You can also expect to see a degree of resurgence from the eco formats. Whole Foods Market will open its first U.K. store in the 20,000- to 25,000-sq.-ft. range, a size that has proven to be a strong fit in its U.S. home market. The Glasgow-area store is scheduled to open in the second half of 2011, while another smaller store is scheduled for Richmond in 2013.
Haldanes is another to watch. The Scottish retailer, which claims to be the first mid-size supermarket chain to open in Britain for nearly 30 years, is the result of two large-scale mergers (Co-op/Somerfield and Asda/Netto) that forced a selloff of sites. A focus on locally sourced products has enabled Haldanes to differentiate from larger rivals in a fashion similar to Union Market, the hybrid farmer’s market/supermarket that opened last year.
Haldanes will also be in the spotlight in April when its first Ugo “discounter plus” store opens. Ugo will essentially be a carbon copy of Netto, but with a larger assortment and extras like home delivery. The only concern is if it moves too far away from the discounter model, it will fail to achieve the efficiencies needed to offer the extreme value expected from that retail setting.
- Monthly Economic Review: Consumers are in the driver’s seat
- If you build it, they will come: How Millennial homebuyers influence retail trends
- 3 web design mistakes that are costing your e-commerce site money
- ‘Eyes Only’ Visa Document Says PIN is Safer Than Signature
- The Benefits of Global Trade for U.S. Retailers, Workers and Their Customers