British food retailers turning to smaller, more convenient store formats, abandoning hypermarket model as customers make more frequent, smaller shopping trips, says analyst; Tesco opened 150 convenience stores in 2011

Cindy Allen

LONDON , March 27, 2012 (Industry Intelligence) – British grocers are increasingly turning to smaller, more convenient store formats, abandoning the hypermarket model, Bloomberg reported March 26.

Jon Wright, Euromonitor International’s head of retailing research, said that cost-consumers are making more frequent and smaller shopping trips as opposed to larger weekly purchases. The high cost of fuel has also made consumers less inclined to drive to stores that are located out-of-town.

According to Euromonitor, the global convenience market grew 6.1% to US$319 billion in 2011, accounting for roughly 6% of total grocery sales—worth US$5.37 trillion—that year.

In 2011, Tesco Plc. opened 150 new convenience stores.

From 2006-2011, Tesco opened roughly 500 new outlets annually, nearly doubling its retail footprint to 103.6 million square feet. During the same period, however, earnings before interest and taxes, as well as sales per square foot of retail space decreased 19%. Costs increased, as did the amount of inventory per square foot.

In January, Tesco’s Chief Executive Officer Philip Clarke said that the company intends to continue focusing on its online business.

Wm Morrison Supermarkets Plc. plans to build 50 new convenience outlets in 2013. New stores will be limited to a maximum of 38,000 square feet. The company is also planning to expand its e-commerce non-food offerings, and will devote an additional £100 million pounds (US$159.62 million) to its convenience store sector.

Royal Ahold NV Chief Executive Officer Dick Boer said that, in terms of non-food items, it has become more difficult for hypermarkets to compete against specialist retailers that offer lower prices and have a wider range of product ranges.

Boer noted that hypermarkets had been hit twice: first by the entry of category killers into the market, and secondly, by online shopping.

According to the Institute of Grocery Distribution, over the next five years, online grocery revenue in the U.K. is expected to double in size to £9.9 billion pounds. One-fifth of the total amount of money that British people spend on groceries is spent at convenience stores.

Planet Retail Global Research Director Natalie Berg noted that people are heading online for their big shopping trips, which are then supplemented by “top-up shops” at local stores, which “kind of invalidates the whole hypermarket model.”

The primary source of this article is Bloomberg, New York, New York, on March 26, 2012.

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