The Big Four have largely fixed the major issues they faced and are as relevant as ever
The Big Four (and Waitrose) got carried away with investing in new stores, at the expense of managing existing space. The result was an abrupt end to the ‘space race’, and priorities were quickly refocused.
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The Big Four stringently assessed their respective property pipelines and pulled away from way out of others, litigated to terminate contracts and wrote down the value of land already acquired at competitively inflated prices.
"The Big Four have now largely fixed the major issues they faced. Rampant discounter openings, negative newspaper headlines, poor customer perception, slipping in-store standards and price differentials have all been tackled head on."
But they didn’t close many stores. Tesco closed 43, but about half were the small Express format and about ten were the ill-fated Homeplus non-food stores.
Only c.10 – 15 were mainstream supermarkets and all were old, out-dated and had newer, bigger Tesco stores nearby. Morrisons closed about 15 stores – these were all former Netto stores acquired when Asda bought Netto but the CMA insisted some were excluded from the purchase to protect against local monopolies.
There were also a handful of stores built but not fitted out – Tesco Chatteris, Sainsbury’s Herne Bay being two high profile examples.
But that is it.
The Big Four have now largely fixed the major issues they faced. Rampant discounter openings, negative newspaper headlines, poor customer perception, slipping in-store standards and price differentials have all been tackled head on. The focus has been to improve customer service, shop standards and perceptions of quality.
They have refurbished stores, installed new management regimes and focused on the “basics”. Distractions were largely ignored and trade has picked up, albeit with profit margins lower than previously.
The large stores remain the grocery retailers’ powerhouses, generating the bulk of group profits. After something of a hiatus, this year will see a return to new store openings.
Morrisons and Sainsbury’s will both open three new stores, and while they are legacy projects, smaller than originally proposed, they are nevertheless a genuine statement of intent.
A network of big stores also provides more holistic long-term opportunities, particularly in the multi- channel arena. Online grocery shopping is not profitable, but is still growing and the omni-channel capabilities of the retailers are of paramount importance.
"Morrisons and Sainsbury’s will both open three new stores, and while they are legacy projects, smaller than originally proposed, they are nevertheless a genuine statement of intent."
Promoting click & collect over home delivery is better for the retailers and the bigger stores carry the full range of goods shoppers are seeing on the websites.
In-store picking for home delivery is most efficient from the bigger stores, click & collect even more so. Having to pick in the big store then deliver to a small store for collection by the customer is the worst of all worlds. Having fixed the customer facing elements of the large stores, expect the next focus to be on educating the shopper to pay more for convenient home delivery and to collect from bigger stores only.
But is there another possibility? Tesco are buying Booker as a wholesale purchase. Morrisons now supply the McColl’s convenience store chain and are looking at other opportunities.
Will the role of the big box store be gradually extended/refocused as a hub with a local distribution network?