Asda's quiet move into the world of convenience retail

The intriguing thing about Asda’s claim that opening two standalone forecourts doesn’t herald a move into convenience is that, superficially, it so obviously does.

A spokeswoman insisted last week that the forecourt opposite HQ in Leeds is simply a great opportunity to sell cheap Asda petrol to employees, while the other site, in Manchester, will focus on trialling innovative chilled and frozen locker collection points for click & collect customers, available 24 hours a day, seven days a week. Asda is less interested in the retail side of things, she adds. And it’s that final point that sticks.

What is Asda up to? Is a cheap petrol perk and click & collect really Asda’s sole motivation for launching standalone forecourts? Or is this move a smoke-screened soft shuffle into launching a convenience store with all mod cons? And if so, does Asda’s entrance firmly establish c-stores as the new battleground among the major multiples?

It certainly makes sense for Asda to pass on its ultra-competitive petrol price positioning to employees, especially if they are claiming it back on expenses. It also makes sense for Asda to experiment with click & collect hubs to widen its appeal to customers and extend its demographic reach.

“Click & collect is the ultimate in convenience in one-stop shopping”

Asda

But it doesn’t make sense for Asda to go in half-cocked and open a click & collect forecourt without a decent convenience range to back it up. The two aren’t mutually exclusive - just the opposite in fact. It’s not as if Asda is unaware of this fact.At Asda’s Q3 results last week COO Judith McKenna enthused about the number of customers who “regularly pick up extra items” when they collect orders in stores, highlighting these incremental sales as a key reason that multichannel is a “critical part of our growth” and “the new normal”.

Meanwhile, arch-rival Tesco’s Christmas ads hammer the benefit of click & collect at its Express c-stores. If Asda, and Tesco for that matter, have identified a trend for up-selling among click & collect customers, why would Asda fail to attempt to capitalise on it by offering a proper convenience range in a brand new bespoke forecourt designed to attract the very same click & collect customers as it does to its superstores?

Investec analyst Dave McCarthy suggests it will, eventually, recalling that Tesco Express started out in a similar fashion. He adds that a move into convenience, firmly twinned with click & collect, is a good one for Asda, as it will allow it to “stretch” its brand, with click & collect performing a vital role.

“What Asda is doing is interesting because it is starting it off in convenience with click & collect as an integral part of the set-up,” he says. “It’s a natural move for Asda to push click & collect and start developing its convenience proposition this way because it doesn’t have as many stores as others, and a lot of its stores are out of town. Netto has stretched the Asda brand by bringing it into towns and this will do the same..”

If petrol-loving Asda has identified forecourts as the perfect place to wage a convenience war, it would be a good strategic move to go in hard. The Grocery Retail Structure 2012 makes it clear that Asda has a lot of ground to catch up.

Tesco is miles ahead, operating 1,898 c-stores, including One-Stops, and 210 standalone forecourts. CEO Philip Clarke values the Express format so highly that in April, when he slammed the Brakes on big box stores, he said Tesco would “maintain investment in expanding our highly successful Express business in the next financial year”.

Sainsbury’s is accelerating c-store growth even faster than Tesco. It had 370 c-stores in 2011, and this week opened number 500. It said convenience was a “key driver” to its 2.5% half-year sales growth last week. Asda, by contrast, was up 0.3% last week at Q3.

Morrisons has seven M-Local c-stores and firm plans for 70 more by the end of 2013. CEO Dalton Philips said its tardy arrival into convenience was creating a “headwind” for growth. Meanwhile, Waitrose has 34 Little Waitrose stores, currently being given a new look and range facelift.

In the midst of all this convenience activity, Asda is conspicuous by its absence. Or at least it will be until it opens its two new forecourts, the first next week and the second in January.

A move on Murco?

And although it steadfastly refuses to set any targets for convenience growth, there are targets for it to aim at. Some 460 have been on the market since 2010 in the shape of Murco, owned by US oil giant Murphy Oil. Asda has form for the eye-catching smash and grab after its acquisition of 147 Netto stores last year. Might it fancy a similar move for Murco?

Possible, but unlikely, says Allan Willen, economics director at property analyst Glenigan. He believes it would be a “big leap into the unknown” for Asda and that the supermarket is more likely to be content with “testing the water” with two stores and exploring their potential. But the potential is there, he adds: “If Asda isn’t seeing returns in stores the size of football pitches, and there are fewer of those enormous stores coming through, smaller convenience stores, backed with click & collect, will enable it to offer the same range they carry in the superstores, or even a lot more, with an easy route to market.”

Asda remained reticent this week. “As it is a trial, details are under wraps,” said a spokeswoman. “In terms of the first tentative steps towards c-stores, the answer is no. We are trialling click & collect, which is the ultimate in convenience in one-stop shopping.” If Asda gets the basics in place at the same time as the bells and whistles, it might just be.