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Food Retailing - UK - November 2004
November 2004     


The UK Food Retail Sector


The UK food, drink and tobacco market

Market value and trends

The term 'food retailers' is becoming ever more inappropriate as the operators of the largest stores increase their non-food offer. But food remains the core of the offer and the main reason that people visit the stores.

Figure 12: UK: Consumer spending on food, drink and tobacco, 1999-2003


(£m incl. sales tax)     
1999     
2000     
2001     
2002     
2003     
% change 1999-2003


Food & non-alcoholic beverages     
57,025     
58,563     
59,974     
61,170     
63,082     
10.6

Food     
50,670     
51,840     
52,882     
53,792     
55,261     
9.1

Non-alcoholic beverages     
6,355     
6,723     
7,092     
7,378     
7,821     
23.1

Alcoholic beverages & tobacco     
24,458     
24,617     
25,158     
25,960     
27,342     
11.8

Alcoholic beverages     
10,166     
10,395     
10,700     
11,338     
12,051     
18.5

Tobacco     
14,292     
14,222     
14,458     
14,622     
15,291     
7.0

Source: National Statistics/Mintel

Demand for food is mature. There is a little growth, particularly from the development of higher margin goods - more fresh foods, organic and ready prepared foods. But on the whole people have enough to eat and do not increase their consumption in good times.

Figure 13: UK: Consumer spending on food, drink and tobacco as % all retail sales, 1999-2003



Source: Mintel

Therefore the upswing in consumer spending on food, drink and tobacco in 2003 is a little unexpected. The year certainly saw much weaker retail sales growth than any other in the last five, but there was certainly no recession and consumer confidence remained high. We believe that the main reason for the slight relative improvement was that inflation in foods was above the average for retail sales in 2003. Spending on food would not have responded to that small relative difference and the proportion of food in the spending mix therefore increased.

For the food retailers, food is the core of the business and the principal traffic driver. Tesco and ASDA have both managed to become destination outlets for some non-foods, but that is very unusual in the context of UK food retailing.

Figure 14: UK: Spending on food and drink, 1999-2003


£m, excl VAT     
1999     
2000     
2001     
2002     
2003     
% change 1999-2003


Bread and cereals     
8,065     
8,346     
8,702     
9,054     
9,137     
+13.3

Meat     
11,883     
12,265     
12,384     
12,628     
13,369     
+12.5

Fish     
2,063     
2,152     
2,298     
2,400     
2,344     
+13.6

Milk, cheese and eggs     
7,263     
7,412     
7,480     
7,435     
7,721     
+6.3

Oils and fats     
1,223     
1,219     
1,221     
1,184     
1,188     
-2.9

Fruit     
3,961     
4,068     
4,242     
4,522     
4,695     
+18.5

Vegetables     
8,228     
8,332     
8,418     
8,301     
8,440     
+2.6

Sugar, confectionery and ice-cream     
6,549     
6,644     
6,732     
6,858     
6,955     
+6.2

Other food     
1,435     
1,402     
1,405     
1,410     
1,412     
-1.6

Total food     
50,670     
51,840     
52,882     
53,792     
55,261     
+9.1


Coffee, tea and cocoa     
1,670     
1,759     
1,841     
1,811     
1,684     
+0.8

Fruit and vegetable juices and other soft drinks     
4,685     
4,964     
5,251     
5,567     
6,137     
+31.0

Total Non-alcoholic beverages     
6,355     
6,723     
7,092     
7,378     
7,821     
+23.1


Spirits     
2,802     
2,777     
2,855     
2,969     
3,183     
+13.6

Wines, cider and perry     
4,389     
4,621     
5,039     
5,431     
5,733     
+30.6

Beer     
2,975     
2,997     
2,806     
2,938     
3,135     
+5.4

Tobacco     
14,292     
14,222     
14,458     
14,622     
15,291     
+7.0

Total alcoholic drink and tobacco     
24,458     
24,617     
25,158     
25,960     
27,342     
+11.8


All food, drink and tobacco     
81,483     
83,180     
85,132     
87,130     
90,424     
+11.0

Source: National Statistics/Mintel

Demand in individual sectors can be erratic and in fresh fruit, price fluctuations can be dramatic.

Figure 15: UK: Growth in consumer spending on food, drink and tobacco, 1999-2003


(%)     
1999     
2000     
2001     
2002     
2003


Bread and cereals     
2.5     
3.5     
4.3     
4.0     
0.9

Meat     
1.6     
3.2     
1.0     
2.0     
5.9

Fish     
2.7     
4.3     
6.8     
4.4     
-2.3

Milk, cheese and eggs     
3.3     
2.1     
0.9     
-0.6     
3.8

Oils and fats     
3.6     
-0.3     
0.2     
-3.0     
0.3

Fruit     
4.1     
2.7     
4.3     
6.6     
3.8

Vegetables     
4.4     
1.3     
1.0     
-1.4     
1.7

Sugar, confectionery and ice-cream     
2.7     
1.5     
1.3     
1.9     
1.4

Other food     
12.0     
-2.3     
0.2     
0.4     
0.1

Total food     
3.1     
2.3     
2.0     
1.7     
2.7


Coffee, tea and cocoa     
2.9     
5.3     
4.7     
-1.6     
-7.0

Fruit and vegetable juices and other soft drinks     
5.6     
6.0     
5.8     
6.0     
10.2

Total Non-alcoholic beverages     
4.9     
5.8     
5.5     
4.0     
6.0


Spirits     
10.7     
-0.9     
2.8     
4.0     
7.2

Wines, cider and perry     
19.0     
5.3     
9.0     
7.8     
5.6

Beer     
3.4     
0.7     
-6.4     
4.7     
6.7

Tobacco     
7.0     
-0.5     
1.7     
1.1     
4.6

Total Alcoholic drink and tobacco     
8.9     
0.7     
2.2     
3.2     
5.3


All food, drink and tobacco     
4.9     
2.1     
2.3     
2.3     
3.8

Source: Mintel

Supermarkets are destination outlets for day to day household requirements - both food and non-food. So cleaning products and certainly health and beauty ranges have long been part of the offer. These items are usually described as 'Grocery - non-foods'. As stores have been enlarged, so the depth of product offer in these areas has increased and many large superstores would install a pharmacy if they could. So in addition to some basic over-the-counter drugs, there is a wide range of drugs and related goods which are available.

The ONS categories, which we quote below, are kept deliberately vague because of the wide range of goods they include.

Non-durable household goods include most of the normal grocery non-foods, such as cleaning materials and a whole collection of miscellaneous items from bin liners to rubber gloves, mops to candles, pegs and insecticides. The only categories included that supermarkets do not usually carry are nails and screws.

Pharmaceutical products include all non-NHS expenditure on drugs. The reason for including it here is that the classification covers both OTC drugs and the remedies/food supplements carried by health food shops. Such products are increasingly found in supermarkets as well.

Other products for personal care includes all toiletries, perfumery and cosmetics and associated products such as razors and toothbrushes. It therefore covers the majority of the health & beauty departments of a superstore.

Newspapers and magazines need no explanation. But they are important to the supermarkets being an easy add-on purchase, even if it is unlikely that many consumers treat the stores as a destination outlet for such products.

Figure 16: UK: Key grocery non-food markets, 1999-2003

     
1999     
2000     
2001     
2002     
2003     
% change 1999-2003


Non-durable household goods     
2,657     
2,786     
2,973     
3,168     
3,349     
+26.0

Pharmaceutical products     
2,660     
2,803     
3,144     
3,420     
3,587     
+34.8

Other products for personal care     
9,121     
9,463     
9,884     
10,931     
11,999     
+31.6

Newspapers and magazines     
4,254     
4,333     
4,198     
4,208     
4,340     
+2.0

Source: National Statistics/Mintel

Newspapers apart, all these sectors have grown strongly, even the cleaning goods which one might have supposed would be mature and ex-growth.

Figure 17: UK: Grocery non-foods spending as % all retail sales, 1999-2003


Source: National Statistics/Mintel

Product breakdown

A detailed breakdown of spending is available from the family expenditure survey. These surveys need to be treated with some caution. The latest one is based on a survey of some 6,600 people. To expect such a survey to produce results which are both accurate and representative is probably being a little optimistic. Nor should one expect the results to tie in accurately with the spending figures already quoted as they come from a different source (the returns filled in by retailers). However, the data is an excellent guide to the relative importance of products.

The figures for spending on alcohol in the next figure are for the take-home trade only - ie alcohol bought from supermarkets or their direct competitors the off-licences. The consumer spending figures shown earlier are for all spending on alcohol, both on and off-trade. Spending on alcohol away from the home was estimated to be £8.90 per week in 2001/02. On that basis some £6.5bn of the £16.5bn (including VAT) total alcohol sales relates to the take-home trade.

Figure 18: UK: Average weekly household spending on food, 2001/02
(£ per household per week)

     
Average spend per week (£)     
%


Food     
38.1     
71.9

Bread, rice & cereals     
3.7     
7.0

Pasta, rice, flour and other cereals     
0.3     
0.6

Biscuits, cakes etc     
2.6     
4.9

Pastry (savoury)     
0.6     
1.1

Beef and veal (uncooked)     
1.3     
2.5

Pork (uncooked)     
0.6     
1.1

Mutton and lamb (uncooked)     
0.6     
1.1

Poultry (uncooked)     
1.5     
2.8

Bacon and ham (uncooked)     
0.9     
1.7

Cold meats, ready to eat meats     
4.6     
8.7

Fish, shellfish and fish products     
1.8     
3.4

Milk     
2.1     
4.0

Cheese     
1.3     
2.5

Eggs     
0.4     
0.8

Other milk products     
1.3     
2.5

Butter     
0.3     
0.6

Margarine     
0.4     
0.8

Peanut butter     
0.0     
0.0

Cooking oils and fats     
0.2     
0.4

Fresh fruit     
2.2     
4.2

Other fresh, chilled & frozen fruit     
0.2     
0.4

Fruit, nuts     
0.3     
0.6

Preserved fruit     
0.1     
0.2

Fresh vegetables     
3.0     
5.7

Dried vegetables     
1.0     
1.9

Potatoes     
0.8     
1.5

Other tubers and tuber products     
1.2     
2.3

Sugar     
0.3     
0.6

Jam     
0.2     
0.4

Chocolate     
1.4     
2.6

Confectionery     
0.6     
1.1

Ice cream     
0.5     
0.9

Other food products     
1.8     
3.4


Non-alcoholic drinks     
3.6     
6.8

Coffee     
0.5     
0.9

Tea     
0.5     
0.9

Drinking chocolate, other food drinks     
0.1     
0.2

Fruit juice, squashes, bottled water     
1.1     
2.1

Soft drinks     
1.4     
2.6


Alcoholic drinks     
5.7     
10.8

Spirits and liqueurs     
1.2     
2.3

Wines, fortified wines     
2.7     
5.1

Beer, cider     
1.7     
3.2

Alcopops     
0.1     
0.2


Tobacco     
5.6     
10.6

Cigarettes     
5.0     
9.4

Other tobacco products     
0.6     
1.1


Total     
53.0     
100.0

Source: National Statistics/Mintel

Channels of distribution

Spending in the core grocery markets of food and grocery non-foods amounted to £113bn (including sales tax) in 2003 and sales by food retailers were £102bn (also including sales tax). In the next table we estimate the sales breakdown of all food retailers. The vast majority of food is sold by food retailers (including M&S). The main exceptions are markets (including the small element of farmers markets) and the food departments of some major department stores, notably Harrods and Selfridges.

Figure 19: UK food retailers: Estimated sales breakdown, 2003

     
£bn (inc VAT)


Food retailers     
102.2

M&S     
3.3

All food retailers     
105.5


Spending on food     
90.4

less markets, Harrods etc     
1.0

Food sales of food retailers     
89.4


Non-durable household goods     
1.7

Pharmaceutical products     
0.4

Other products for personal care     
6.0

Newspapers and magazines     
0.4

Grocery non-food sales     
8.5


Other non-foods (inc clothing and household)     
8.0

Source: Mintel

Food retailers generally have much smaller shares of non-food markets. They are important for cleaning materials and health and beauty products. They have had a significant impact on other markets, such as news and OTC drugs, partly because they make the products available and partly because they have led high profile campaigns against the last vestiges of Resale Price Maintenance.

However, the main driver for growth for food retailers has been the development of sales in other non-food areas, sectors which, until little more than a decade ago, were considered to be the preserve of the high street. ASDA now claims to be the second largest clothing brand in the country, by volume, and generates sales of well over £1bn. Tesco is also making a significant play for the sector. In the largest stores, the grocers are also important retailers of household goods and electricals, music and videos, books and magazines. There are few sectors that they do not have some stake in and even smaller stores generally sell cut flowers.

Retail prices

The inflation figures for food and drink are the implied deflators as published with the new consumer spending data. More detailed figures are sometimes available, but these have the virtue of relating directly to the spending categories shown earlier.

Figure 20: UK: Inflation in food, drink and tobacco, 1999-2003


(%)     
1999     
2000     
2001     
2002     
2003


Food and non-alcoholic beverages     
0.21     
-0.62     
3.52     
0.70     
1.39

Of which:

Food     
0.21     
-0.41     
3.95     
0.80     
1.59

Bread and cereals     
0.00     
-0.40     
1.52     
1.00     
1.09

Meat     
0.00     
0.42     
4.38     
0.70     
0.70

Fish     
9.22     
2.60     
1.52     
2.50     
-1.07

Milk, cheese and eggs     
-1.12     
-0.41     
3.31     
1.30     
1.97

Oils and fats     
-1.62     
-1.07     
-1.96     
2.10     
-0.20

Fruit     
-1.19     
0.66     
8.46     
1.10     
1.48

Vegetables     
0.31     
-4.08     
9.05     
-1.50     
2.54

Sugar, confectionery and ice-cream     
1.24     
0.41     
1.42     
2.10     
3.82

Other food     
0.93     
0.41     
1.73     
0.90     
0.20


Non-alcoholic beverages     
-0.39     
-1.57     
0.00     
0.20     
0.00

Coffee, tea and cocoa     
-3.12     
-5.49     
0.10     
1.10     
-2.18

Fruit and vegetable juices and other soft drinks     
0.60     
-0.10     
0.00     
-0.10     
0.60


Alcoholic beverages and tobacco     
5.78     
4.07     
2.99     
1.70     
3.54

Of which:

Alcoholic beverages     
0.81     
0.60     
-0.50     
-0.30     
1.50

Spirits     
-1.44     
-1.46     
-1.19     
-0.30     
0.90

Wines, cider and perry     
2.09     
1.64     
0.60     
0.40     
1.89

Beer     
1.10     
0.89     
-1.67     
-1.60     
1.42


Tobacco     
9.79     
6.77     
5.71     
3.40     
5.13

Source: National Statistics/Mintel

Inflation in foods can be very erratic as fresh food prices can vary widely, depending on the harvest and the supply situation of imported goods. In 2003, inflation in foods was above average for consumer goods and this was, in itself, unusual. This was probably the main reason why spending on food rose as a proportion of retail sales in 2003.

Food retailers

Sales values and trends

The food retailers are the largest sector of UK retailing and the grocers take the vast majority of sales. In fact the sales of the grocers alone comfortably exceed all consumer spending on food. As a broad generalisation, looking at Europe, countries which have allowed superstore or hypermarket development, have a vibrant, growing food retailing sector. Countries still dominated by smaller stores, do not. The UK is firmly in the former category.

Even so, even in a hypermarket dominated sector, generating growth remains the major problem. There is little scope for growth in food, except by taking market share, so effort must be geared to developing non-food ranges. One company, however, is a major food retailer having started off from a non-food base. Marks & Spencer has well publicised problems at present, but on the whole these did not affect its food business until 2004. Rather, until then the continued success of food has helped support footfall through the rest of M&S' stores. (Except where new Simply Food outlets have taken business away from a nearby full range store. The development of such standalone food specialists is currently being questioned.)

M&S is classified as a clothing retailer in the ONS statistics. We therefore split out the food retail sales and have included them with other food retailers for the purposes of estimating our total market size.

Figure 21: UK: Food retailers' sales, 1999-2003


(£m, excl VAT)     
1999     
2000     
2001     
2002     
2003     
% change 1999-2003


Food retailers (ONS)     
83,868     
86,395     
92,335     
96,579     
100,341     
19.6

Annual % change     
3.9     
3     
6.9     
4.6     
3.9     
-

As % of all retailers' sales     
46.5     
46.3     
46.5     
46.6     
47.3     
-

Marks & Spencer (food)     
2,692     
2,734     
2,891     
3,141     
3,314     
23.1

Annual % change     
3.3     
1.6     
5.8     
8.6     
5.5     
-

As % of all retailers' sales     
1.5     
1.5     
1.5     
1.5     
1.6     
-


All food retailers     
86,560     
89,129     
95,226     
99,720     
103,655     
19.7

Annual % change     
3.9     
3     
6.8     
4.7     
3.9     
-

As % of all retailers' sales     
48     
47.8     
47.9     
48.1     
48.8     
-


All retailers     
180,457     
186,658     
198,763     
207,256     
212,293     
17.6

Annual % change     
3.6     
3.4     
6.5     
4.3     
2.4     
-

Source: National Statistics/Mintel

Scale advantages

The grocers, particularly the large store operating market leaders - Tesco, ASDA, Sainsbury's, Morrisons (now including Safeway) and Waitrose have extended their lead by developing ever larger stores in order to expand their ranges, by using the economies of scale to drive down prices and through investment in systems in order to make their operations more efficient.

Increasingly this is a market which favours the major players - scale brings huge advantages:

. in the potential efficiencies of the distribution network
. in being able to afford state of the art systems
. in bargaining power with suppliers

Power, of course, brings responsibility and it was fear that the power being wielded would be too great that led the competition commission to insist that there should be at least four major players in the food retailing sector. Even so there are constant complaints from suppliers that pressure from the supermarkets is forcing them into losses. There can be little doubt that there are pressures on the supermarket operators - from the City to keep profits moving ahead and from each other as there is a constant jockeying for position on price.

Consumer advantages

There are increasingly common complaints in the media that the grocers have too much power - over suppliers and also over what we are able to buy. Again, there is a lot of truth in this, but it is also true that consumers are not forced to shop in the outlets of one of the market leaders. They do so because the grocers have a much superior retail offer to their smaller competitors. The grocers' hold on the market is now so secure that there are few options to using them for the main weekly shop, but they have attained this position through the excellence of their retail offer. Consumers could have gone elsewhere, but they chose to go to the market leaders and they still do so.

Not only have they gained market share from smaller, weaker grocers, but they have taken a substantial part of the share of the specialist food retailers and, increasingly from non-food retailers as well.

They have built up very strong retail brands and offer an unbeatable combination of advantages:

. Convenience : from being able to do a full weekly grocery shop in one place.
. Low prices - which come from the buying power and from what is still a healthy competitive arena.
. Product innovation - much of the development of ready prepared meals has come from the food retailers.

Their strength has extended into other areas as well. They have taken a substantial share of the fuel market by using low petrol prices as a way of attracting customers to the stores. In doing so they have put pressure on standalone petrol forecourts which now have to include a retail offer if they are to make a reasonable return on their sites. But even here the market leaders have the advantage. They can operate forecourt stores with a wider, more reliable range and at more competitive prices than the petrol companies can manage. Therefore, Tesco (with Express), Sainsbury's (with Local) and Safeway have teamed up with Esso, Shell and BP respectively to develop combined units. Somerfield, which has also developed a C-store format, has linked up with Total/Fina/Elf.

Not only have the grocers gained share of food retailers' sales, they have increased their share of all retail sales by 4 percentage points in the last ten years. Part of that gain has come from the food specialists, but the food retailers as a whole have been gaining share as well.

Figure 22: UK: Food retailers' sales as % all retail sales, 1999-2003


Source: Mintel

Unfortunately, as we write, the ONS is in the middle of a lengthy process of revising its data. In the meantime only headline figures are being published. The revision has already taken a year and there is no prospect of new data being published in the near future.

Figure 23: UK: Food retailers' sales, by type of retailer, 1999-2003
(£mn, excl. sales tax)

     
1999     
2000     
2001     
2002     
2003     
% change 1999-2003

Sales (£mn, excl. sales tax)


Grocers     
69,815     
72,067     
77,135     
81,639     
85,246     
22.1

Large     
63,637     
66,182     
70,764     
74,837     
78,289     
23.0

Small     
5,842     
6,058     
6,491     
6,437     
6,578     
12.6

All food specialists     
14,052     
14,328     
15,200     
14,940     
15,095     
7.4

Greengrocers     
1,309     
1,359     
1,598     
1,397     
1,416     
8.1

Butchers     
2,283     
2,408     
2,534     
2,534     
2,515     
10.2

Fishmongers     
162     
162     
175.56     
172.9     
158     
-2.3

Bakers     
1,859     
1,911     
1,963     
2,066     
2,103     
13.1

Other food specialists     
1,393     
1,468     
1,468     
1,468     
1,490     
7.0

Alcohol     
3,062     
2,783     
2,867     
2,672     
2,673     
-12.7

Tobacconists     
3,984     
4,236     
4,594     
4,630     
4,740     
19.0

All food retailers     
83,868     
86,395     
92,335     
96,579     
100,341     
19.6

Annual % growth

Grocers     
4.2     
3.2     
7.0     
5.8     
4.4     
-

Large     
3.3     
4.0     
6.9     
5.8     
4.6     
-

Small     
3.8     
3.7     
7.1     
-0.8     
2.2     
-

All food specialists     
2.3     
2.0     
6.1     
-1.7     
1.0     
-

Greengrocers     
-7.2     
3.8     
17.6     
-12.6     
1.3     
-

Butchers     
2.2     
5.5     
5.2     
0.0     
-0.7     
-

Fishmongers     
-21.7     
0.0     
8.4     
-1.5     
-8.5     
-

Bakers     
-1.0     
2.8     
2.7     
5.3     
1.8     
-

Other food specialists     
8.8     
5.4     
0.0     
0.0     
1.5     
-

Alcohol     
4.8     
-9.1     
3.0     
-6.8     
0.0     
-

Tobacconists     
4.7     
6.3     
8.5     
0.8     
2.4     
-

All food retailers     
3.9     
3.0     
6.9     
4.6     
3.9     
-

As % all food retailers

Grocers     
83.2     
83.4     
83.5     
84.5     
85.0     
-

Large     
75.9     
76.6     
76.6     
77.5     
78.0     
-

Small     
7.0     
7.0     
7.0     
6.7     
6.6     
-

All food specialists     
16.8     
16.6     
16.5     
15.5     
15.0     
-

Greengrocers     
1.6     
1.6     
1.7     
1.4     
1.4     
-

Butchers     
2.7     
2.8     
2.7     
2.6     
2.5     
-

Fishmongers     
0.2     
0.2     
0.2     
0.2     
0.2     
-

Bakers     
2.2     
2.2     
2.1     
2.1     
2.1     
-

Other food specialists     
1.7     
1.7     
1.6     
1.5     
1.5     
-

Alcohol     
3.7     
3.2     
3.1     
2.8     
2.7     
-

Tobacconists     
4.8     
4.9     
5.0     
4.8     
4.7

All food retailers     
100.0     
100.0     
100.0     
100.0     
100.0

Note: Apart from the figures for all food retailers, the data for 2003 is estimated

Source: National Statistics/Mintel

Home shopping

The home shopping services of the food retailers have attracted far more media comment than their mere scale justifies. However, development of Internet shopping could pose a major threat to the superstores in the longer term. If home shopping demand became too great it would take too much trade from the stores and render them unprofitable.

That is not happening at the moment - demand is just too small. In part this is because too few people have broadband Internet access. Even for those who do have broadband, the services are slow to use, there is the need to be at home to accept deliveries and there is considerable anecdotal evidence that the supermarkets are poor at substituting products that are out of stock.

We are sure that in the longer term there will be more demand for Internet shopping services. It will not be long before we can walk a virtual store and select the products we see there. Even so, it is worth remembering that home shopping has never been particularly successful, except as a way of obtaining goods on credit. The Internet does have advantages over a catalogue but we wonder how many people will actually prefer to spend an hour in front of a PC screen rather than visiting the superstore themselves.

At present the Internet takes a tiny share of grocery spending. Tesco alone generated £577 million in online sales in 2003/04. That figure is a worldwide total, but the majority of sales are in the UK. Tecso therefore generates around 2% of it UK sales online and that represents about 0.5% of all UK food retailers sales.

Saisbury's, ASDA, Waitrose and Iceland also have online businesses. None of them reveal sales, though Waitrose (both operated by itself and through its associate Ocado) and Sainsbury's both reveal significant losses. We doubt whether the total online sales by all other food retailers amount to as much as Tesco's. Total online food retail sales in the UK are therefore of the order of 1% (£1billion) of all food retailers sales.

While this seems a substantial sum in its own right it is only the equivalent of 10 Tesco Extras and is not large enough for any of the food retailers, apart from Ocado for Waitrose, to have set up dedicated depots. All retailers have adopted the Tesco model of serving online sales from stores and Ocado has yet to prove that it can make a depot based model work. In the longer term, one assumes that the depot model must be right in order to achieve adequate reliability of service and better substitution practices. But, so far, demand is too low.

Enterprise and outlet data

The outlet data confirms the picture already seen in the retail sales data. There has been a small increase in the number of grocers outlets, reflecting their continued growth in market share. It is also now the case that a new superstore does not cause the closure of many smaller stores and the last few years have seen a significant expansion in the convenience store sector. Companies such as Alldays (now owned by the Co-operative Group) and One Stop (now owned be Tesco) led the way. Both fascias are now rapidly disappearing, but the growth in convenience stores continues, led by Tesco and Sainsbury.

Elsewhere, the picture is of steady, often rapid decline. The slowest decline has been in fishmongers, mainly because there are now so few left and the previous decade had seen so many closures. The tobacconists have been hit hard in the last five years, partly because of price pressure from the grocers and partly reflecting increased cross-channel imports in the wake of the ending of duty free concessions and partly because of declining consumption. It is now virtually impossible to make a living as a specialist in many of these areas but it often makes sense for two or more units to join forces and so create another non-specialist (as the grocers line should, more accurately, be called).

Figure 24: UK: Food retail outlets, by sector, 1998-2002


SIC code          
1998     
1999     
2000     
2001     
2002     
% change 1998-2002


52.11     
Grocers     
41,311     
42,951     
42,388     
42,528     
43,135     
+4.4

     
Specialised stores (food, drink & tobacco)     
65,098     
60,476     
56,913     
53,448     
50,799     
-22.0
     
of which:

52.21     
Greengrocers     
8,207     
7,672     
7,110     
6,424     
6,053     
-26.2

52.22     
Butchers     
10,834     
10,653     
10,399     
10,015     
9,688     
-10.6

52.23     
Fishmongers     
2,023     
1,983     
1,860     
1,780     
1,770     
-12.5

52.24     
Bakers     
8,709     
8,412     
8,038     
7,615     
7,548     
-13.3

52.25     
Off-licences     
11,499     
10,996     
10,800     
10,508     
10,022     
-12.8

52.26     
Tobacconists     
14,192     
11,484     
9,956     
8,700     
7,622     
-46.3

52.27     
Others     
9,634     
9,276     
8,750     
8,406     
8,096     
-16.0

     
All food retailers     
106,409     
103,427     
99,301     
95,976     
93,934     
-11.7

Source: National Statistics/Mintel

Leading players

The UK is dominated by four superstore groups. Tesco is far out in front. ASDA would be number two in terms of volume of goods sold and in terms of numbers of primary shoppers (see the Consumer research), but Sainsbury's was still the number two in 2003. It is likely, however, that by the middle of 2004, ASDA had overtaken Sainsbury in value terms as well.

William Morrison bought Safeway in early 2004 and we show the group on a pro-forma basis. This overstates the scale of the business. Safeway has traded poorly since the last reported figures and Morrisons has disposed of many outlets since the acquisition. It was required to dispose of 52 stores, most of which had gone by October, and it has also been selling the smaller stores - stores of a size that it has no experience of running. The pecking order for 2004 is likely to run Tesco, ASDA, Sainsbury's, and then Morrisons.

The list is of the top 50 food retailers in the UK, not just the grocers. It therefore includes specialists such as off-licences, bakers and confectioners. But it is worth noting that the total sales of number 5 to 50 are less than the sales of the top two alone.

Figure 25: UK: Leading players, 2002/03


(Parent/country of origin)     
Number of outlets     
Sales (£m)


Tesco     
1,877     
24,760

J Sainsbury     
583     
14,220

ASDA (Wal-Mart, USA)     
267     
13,300

Wm Morrison Group     
604     
13,194

Safeway Stores     
479     
8,250

Wm Morrison Supermarkets     
125     
4,944

Somerfield     
1,268     
4,521

Kwik Save      
634     
1,718

Somerfield Stores      
598     
2,743

Marks & Spencer (food)     
390     
3,314

Co-operative Group     
3,158     
3,251

Waitrose (John Lewis Partnership)     
144     
2,548

Spar UK      
2,535     
1,905     
*

Iceland     
748     
1,544

Londis (Holdings)      
2,200     
1,541

Lidl (UK) (Schwarz Group, Germany)     
321     
1,340     
*

Costcutter Supermarkets Group      
1,300     
1,050

Thresher Group Plc     
2,300     
926     
*

Aldi Stores (UK) (Germany)     
244     
887     
*

Musgrave     
334     
744

Budgens Stores Limited     
228     
503

Musgrave (Northern Ireland)     
106     
240

United Co-operatives      
625     
877

Shell (UK) Retail     
na     
660     
*

Midlands Co-op      
203     
548

Texaco (UK retail)     
1,543     
510     
*

Netto (Dansk Supermarked, Denmark)     
300     
527

Fuelforce     
172     
460

Esso Petroleum Co (retail)     
1,435     
450     
*

BP Oil UK (retail)     
1,243     
440     
*

Greggs Plc     
1,231     
457

Mace (England)     
750     
360

Total UK      
1,150     
364

James Hall & Co      
na     
264     
*

Farmfoods      
276     
247     
*

BWG Group     
1,000     
233     
*

Appleby Westward (Spar shops) UK     
330     
na     
*

Bargain Booze      
500     
103     
*

Mace (Northern Ireland)     
170     
130     
*

Capper & Co      
500     
220     
*

Anglia Regional Co-op      
60     
262

Oxford, Swindon & Gloucester Co-op     
114     
227

Lincolnshire Co-operative     
105     
196

Scottish Midland Co-op      
175     
259

Tates      
181     
191     
*

Holland & Barrett Retail      
520     
186     
*

Ipswich & Norwich Co-op      
70     
171     
*

Southern Co-operatives      
na     
170     
*

EH Booth & Co      
27     
168     
*

Thorntons Plc     
581     
179

Colchester & East Essex Co-op      
na     
156     
*

Oddbins      
222     
136

Unwins      
436     
155     
*

William Jackson & Son      
107     
137     
*

Majestic Wine Warehouse      
114     
148

Murco/EP     
422     
115     
*

Plymouth & South West Co-op      
62     
111     
*

Lothian, Borders & Angus Co-op      
62     
99     
*

The Channel Islands Co-op      
25     
90     
*

* Data for 2002/03

Source: Mintel

This report inevitably concentrates on the grocers because of the way they dominate the sector. But while the growing concentration of the grocers dominates the headlines, there has been concentration in several other sectors as well. Greggs is easily the largest specialist baker, but has continued to expand. Lyndale, though much smaller, is following a similar path.

Off-licences have come under pressure from the grocers because they can match, or exceed the depth of range, be more aggressive on price, are more convenient and are more congenial places to browse than the smaller off-licence which can be very intimidating to many.

The Co-ops have been treated separately, even though there is a good deal of common buying between them. The Co-operative movement as a whole would rank fifth, behind Morrisons and ahead of Somerfield.

Market shares

Four players account for 65% of food retailers sales and the top 10 account for almost 85%. It is no wonder that the competition commission refused to sanction concentration to just three major players. Even so, it remains to be seen how successful Morrisons will be in integrating the Safeway business. It is a major task. Store sales will reduce Morrison's market share perhaps to under 10% by 2005, but it is still faced with integrating a business which is far bigger and has a very different culture.

Figure 26: UK: Top ten food retailers' market share, 2003
(% share of sector sales)

     
Company     
Market share
          
%


1     
Tesco     
24.7

2     
J Sainsbury     
14.2

3     
ASDA      
13.3

4     
Wm Morrison Group     
13.1

5     
Somerfield     
4.5

6     
Marks & Spencer (food)     
3.3

7     
Co-operative Group     
3.2

8     
Waitrose      
2.5

9     
Spar UK      
1.9

10     
Iceland     
1.5

Source: Mintel

Waitrose apart, the table now seems to split neatly into two. The top four are primary, destination food shops. The rest (apart from Waitrose) are secondary, top up shops. In fact, the secondary sho
ps are taking the lead from the majors, particularly the C-store formats of Tesco and Sainsbury's.

11/2004