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The IFE Grocery Retail Review March 2015

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The IFE Grocery Retail Review March 2015 The IFE Grocery Retail Review Written by GreenSeed UK March 2015 Contents I. Introduction – Green Seed Group II. Overall UK Grocery Retail Market III. Key Retailer Profiles IV. Retailer Market Shares V. Features of Grocery Retailing VI. Private Label and Retailer Strategies VII. Specialist Channels VIII. Consumer Trends IX. Future Outlook X. Further Information 2 The Green Seed Group The Green Seed Group is a unique, international consulting network, specialising in the food & drink sector, with office locations in the UK and elsewhere in Europe and North America. Since we started business in 1991, we have assisted over 1,000 clients growing brands and selling products internationally. Green Seed is delighted to be the international partner of IFE 2015. and Green Seed UK has compiled this review on behalf of IFE. For further information on the UK market please see our contact details at the end of the document. We Advise, We Execute & We Deliver - www.greenseedgroup.com 3 UK GROCERY RETAIL MARKET The UK Grocery Market • The UK grocery market was worth £174.5 billion in • Waitrose is the only traditional supermarket retailer the year to April 2014, an increase of 2.8% on 2013 to increase sales (+4.9% YOY) • This was the lowest rate of growth in the last 10 • Aldi and Lidl continue their strong performance, years driving the increased discounters’ share of the market • The grocery market’s share accounts for 54.5p in every £1 of UK retail spending • The space race is over: opening new hypermarkets and supermarkets to drive improved overall • The overall grocery market is flat and with all the performance is no longer the route to success. major players investing in price cuts, little if any Retailers are cancelling store opening plans and overall growth is to be expected for 2015 considering options for their land banks • All the Top 4 retailers are registering a decrease in • Convenience, on-line and discounting are the sales. New CEOs have been appointed in 3 of the 3 areas of growth in grocery retail as shopping top 4 retailers in the last 12 months habits are changing, and shopping frequency is increasing, while hypermarkets and supermarkets • The market continues to polarise: one premium are feeling the pressure retailer and two discounters continue to grow while the middle ground stagnates or declines: 5 UK Grocery Market Performance 2004-2014 200 10% 180 169.7 174.5 9% 163.2 160 152.2 157.3 8% 146.0 139.2 140 128.7 133.6 7% 120.0 124.6 120 6% 4.9% £bn 100 5% 4.3% 4.2% 3.8% 3.8% 3.8% 3.7% 80 3.6% 4% 3.3% 3.3% YOY growth (%) 2.8% 60 3% 40 2% 20 1% 0 0% 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 6 UK Grocery Retail Sales 2014 9.4 bn 7.7 bn Discounters Online 10.8 bn 73.7 bn Other Retailers Hyper Markets & Superstores 35.5 bn Convience Stores Small Supermarkets 37.4 bn 7 UK Grocery Multiple Retailers Stores by Format SUPERMARKETS SUPERSTORES HYPERS TOTAL YOY TESCO 192 480 235 907 +2.3% SAINSBURY 245 301 65 611 +2.2% ASDA 190 271 72 533 +2.9% MORRISONS 209 281 1 491 +3.8% WAITROSE 240 41 1 288 +4% M&S (F/HALL) 319 - - - -0.3% (SIMPLY FOOD) 125 - - - -7.8% Source: Grocery Retail Structure Wm Reed Bus Media May 2014 8 UK Grocery Multiple Retailers Stores by Format CONVENIENCE Supermarkets YOY % STORES (Co-op only) TESCO 1,978 - +7.9% THE CO-OP 1,410 373 +1.7% SAINSBURY 498 - +20% Source: Grocery Retail Structure Wm Reed Bus Media May 2014 9 Convenience Sector Growth • There are over 47,000 convenience stores in the • While the multiples account for only 8% of total UK and IGD record an increase in numbers of +1.3% store numbers, their share of convenience store in the year to April 2014 sales is more than double that share at 19.4% • Symbol groups make up 40% of the total market • Tesco (Express and Metro) and Sainsburys (Local) by sales and, together with independently owned are the most important multiple C store operators stores, make up ca 60% of the market and continue to open new outlets • Much of the growth in store numbers is accounted • Waitrose launched Little Waitrose, following a for by the retail multiples who have been successful roll-out of motorway service outlets, with developing fast in the sector a further 20 stores opened in 2014 • In the 12 months to April 2014 the convenience • Morrisons (M Local) has missed out on the channel market generated £37.4bn in sales. This represents growth opportunity by only recently developing a year-on-year increase of 5.2%. a C store presence, not all of which have been successful • Growth in convenience sector sales accounted for by the multiples increased by 16.3% 10 Convenience Sector Opportunities • The convenience market is growing both as a • They also provide the retailer an opportunity to result of socio-economic factors (such as irregular test products and concepts against a particular working hours, smaller household sizes) and a demographic, with a view to potential roll-out change in shopping patterns, with more frequent across other parts of their estate trips eating into the traditional supermarket shopping bill • City centre London Tesco Express stores, for example, will stock different ranges from suburban • Shoppers concerned to reduce food waste use outlets, to meet different customer needs and convenience stores to buy what they need at a shopping missions particular time or for a particular occasion, rather than in bulk • Store product ranges can be adapted to meet the special requirements of the local population or workforce 11 Discounters • Discounting has been part of the UK market for • But even since the economy has begun its many years, but only recently become a game- recovery, Aldi and Lidl remain the UK’s fastest changing phenomenon growing retailers and are driving the growth of the discount sector overall • Aldi entered the UK market some 25 years ago with its limited assortment model, attracted by • In 2010 Aldi and Lidl’s combined market share was an opportunity where the existing larger players - 4.5%. Now it is 8.5%. enjoying much greater margins than Aldi would be used to - had shifted the battleground away from • Shoppers are impressed by the quality of products price and towards quality and service they find in store and their simple best price offer makes a refreshing change to the blizzard of • Aldi and fellow German retailer Lidl started to make promotions and vouchering they find in the major a real impact on the market during the economic multiples downturn in 2008 This prompted a number of retaliatory actions from other players such as Tesco, • Both retailers have invested in increasing their who introduced a new private label discount brands limited assortment ranges and improving their in- range and reminded its shoppers that Tesco was store environment the ‘UK’s favourite discounter’ • Aldi has 500 stores and has pledged to double their store numbers. Lidl has 600 stores and has stated an intention to have 1,500 12 On-Line • On-line sales account for 6% of the total grocery • IGD research reports that 26% of consumers used market on-line shopping in January 2015, while 11% claim to do most of their shopping on-line • Growth is strong: currently running at a rate of +18% year-on-year • As technology changes, so do shopping habits: Ocado, the on-line only grocery retailer report that • Click and Collect is developing fast as an additional 45% of customer purchases are checked out using fulfillment option for shoppers to home delivery, a mobile device with the leading retailers increasing the number of collection locations available to customers, ranging from their own stores to London underground station collection points • On-line is forecast to be the fastest growing channel in grocery in the coming 5 years 13 RETAILER PROFILES Tesco • We want to be the first to meet their needs and use • Its volume-led strategy utilises its advantages our scale for good. of scale and it aims to establish multichannel leadership in all its geographical markets • Market leader by a substantial margin – despite a falling market share, Tesco’s UK business remains • Tesco has a substantial on-line business with sales considerably larger than its closest competitors of £2.5 bn in 2013/4 financial year and has over 40% share of the UK online market. Products are • Its UK sales 2013/4 year were £43.6bn selected via in-store picking and 6 Dark Stores. Home delivery charges have decreased sharply (as • Unlike most of its competitors (except Walmart low as £1) and its click and collect option is available subsidiary Asda), also has significant business at some 2,000 locations outside the UK in Central and East Europe and Asia. Its volume-led strategy utilises its advantages • In an attempt to put ‘soul’ back into the Tesco of scale and it aims to establish multichannel shopping experience, a number of new ventures leadership in all its geographical markets are now present in store, including a restaruant chain (Giraffe), coffee shops (Harris and Hoole) and • Tesco has diversified outside grocery and non-food artisan bakery (Euphorium) and is trialling a food to in banking and mobile telecomms – it is a large go venture consumer business not just a grocery retailer • It reaches out to all parts of the market 15 Tesco • Financial issues, combined with a prominent role and service – with more staff on the shop floor in the horsegate scandal, have led to a decrease in trust in the retailer, according to some • Focus has been on refreshing existing space consumer surveys (one-third of estate refreshed over 2013/14) rather than opening new larger
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