The Space Race has been dead for years. Although someone forgot to tell Aldi and Lidl
The Space Race has been dead for years. Although someone forgot to tell Aldi and Lidl. The discounters are still accelerating when it comes to new builds: between the two of them they submitted planning permission for 152 new stores in 2016. The rest - Asda, the Co-op, Iceland, M&S, Morrisons, Tesco, Sainsbury’s and Waitrose - submitted plans for just 100.
Why? Because instead of the expensive new builds that characterised the booming supermarket scene in the 1980s and 1990s, a cheaper refurbishment programme has been going on up and down the UK as tired estates are rethought and refreshed, while plans for new stores are dropped - even when they are finished and ready to open, such as the Tesco store in Chatteris which made headlines when it was mothballed in 2015.
It remains under wraps. In January the Wisbech Standard reported that Poundstretcher might take half of it. But Tesco is not alone when it comes to rejecting new builds in favour of revamping existing space.
A similar strategy has been announced by other grocers including Sainsbury’s and, most recently, Waitrose, which confirmed in September 2016 it had dropped plans to open seven new stores and instead focus on revamping existing ones.
“As many as two thirds of planned new large stores have been cancelled by the major grocers in the last two years,” says Andy Brian, retail partner at Gordons law firm.
“Clearly there are commercial factors behind these decisions: at a time when profit levels are far from buoyant in the sector, Brexit, the weak pound and the return of inflation are all cause for concern. But even without the uncertainty generated by Brexit, which may or may not prove to be cause for concern, retailers can be absolutely certain the “forthcoming business rates revaluation, Apprenticeship Levy and National Living Wage will squeeze big business margins even further, which will put pressure on the big four as they seek to maintain profit levels, never mind trying to bring them back up to something like the levels they previously enjoyed.”
The decision isn’t simply a financial one, of course. “Supermarkets have changed their strategy because of a significant change in consumer shopping habits which shows no sign of slowing. As more and more shoppers turn to convenience ‘top-up’ shopping - and as the German discounters have continued to grow their market share - the big four have been forced to focus on price and customer offer, instead of superior footprint.
‘Two-thirds of planned new stores have been cancelled by the grocers in the last two years clearly there are commercial factors behind these decisions’
“Changing habits mean many consumers will now choose to buy their weekly shopping in several trips, often to different supermarkets, to take advantage of price competition. The continued growth of online grocery shopping has had a similar effect, weakening the appeal of (and the need for) a traditional ‘big shop’. All of this means the logical decision for supermarkets in many cases has been to improve the offer in existing stores, rather than investing in new ones. Tesco has focused on concessions, while Waitrose says it will focus on its ‘hospitality’ offer, including cafés, bakeries, wine and juice bars.”
Customers can “come in and experience our food but also socialise in the environment,” says Naomi Gillies, head of future planning and sustainable development at Waitrose. “We’re trying to create a space where customers feel they can eat in the supermarket, led by our marketing director and MD, who have spent some time in the US looking at how supermarkets operate. They’ve accepted there you can go to a supermarket and have your dinner. In the UK that still feels quite alien.”
It also feels ambitious. But there is no doubt everyone is working hard to win over customers - keep scrolling to see what they are up to. All store numbers are taken from the Grocery Retail Structure 2016 and the Grocery Retail Structure 2011, and planning pipeline numbers are provided by Barbour ABI.
ALDI
Existing stores: 638
Aldi’s property strategy is straightforward - buy as much suitable property (anything with a catchment population in excess of 10,000, ideally situated on principal roads with prominent road frontage) as possible. But it also has plans to spend big on revamping existing stores.
Aldi Stores At A Glance
After spending much of the past few years on increasing the size of car parks and extending shop floor space, it revealed plans last September to invest £300m on a store refit programme to refurbish more than 100 stores in 2017.
New features would include newly designed fixtures for beers, wines and spirits; fresh produce; and baby & toddler, as well as a new food-to-go fixture. Each store will also see a significant increase in chilled space, while other improvements include new in-store colours to signpost categories, signage focusing on quality, range and provenance, and product-specific lighting.
“We have 70 new Aldi supermarkets opening across the UK this year,” said CEO Matthew Barnes in January. “Our 700th store is due to open in February. As Britain’s fastest growing supermarket we remain committed to meeting the strong demand across the country for new Aldi stores.
ASDA
Existing stores: 630
Asda has had a stop-start few years when it comes to property. It last made a major play in 2011 when it purchased 193 Netto Stores for £778m (though it was later forced to divest of 47 by the CMA), which allowed it to launch small supermarkets and extend its reach into high streets.
Asda Stores At A Glance
It also started buying forecourts, starting in 2013, though it steadfastly maintained it was not interested in operating in the convenience space. Instead it adopted the theory that convenience shopping meant convenient ways to shop and started rolling out click & collect lockers in various locations, from commuter-friendly stations to industrial estates.
However, in 2015 it announced it was slowing down its planned expansion of small supermarkets and forecourts and click & collect sites to focus on what CEO Andy Clarke called its “core business” of big box supermarkets.
It also announced a budget of £600m to spend on building new stores and refurbishing 95 existing ones, putting in improved counters for butchery, fish and hot pizza, better lighting, larger signage in subtler colours, and improving the appearance of fresh produce. It also started adding community rooms. Asda currently has just five new stores in the planning pipeline.
THE CO-OP
Existing stores: 2,816
Opening up 100 new stores in 2016 as well as investing in 150 refits, the Co-op says it is on a mission “to become the number one convenience retailer in the UK” by focusing on bringing its stores up to date in three core areas.
The Co-op Stores At A Glance
As “the fastest growing food retailer in food to go”, investing in extended and co-ordinated Food for Now ranges is job number one, says format, space and range director Mark Roast. This is a move that has meant a “delicate balancing act” in existing stores with cutbacks being made on some other ranges to make room.
Crucially, though, stores also “need to deliver more consistently all day everyday,” he adds, with experiences currently varying considerably “depending on the time or type of store”.
“We know we need to be as good first thing in the morning as we are at lunchtime, and in the evening,” he adds.
Finally, continued innovation “to stay with and ahead of the market” will drive decisions on store refurbs going forward. The Co-op plans to continue at the same rate for the next three years, with trials on larger stores kicking off later in 2017.
ICELAND
Existing stores: 865
In May 2015, Iceland boss Malcolm Walker vowed to open only Food Warehouse stores in future. Bigger (10,000 sq ft) and more upmarket, his plans for the new format are ambitious: he currently has 12 but wants to open up to 25 a year, though he would be happy with 50 over the next five years.
Iceland Stores At A Glance
However, the stunning success of the Clapham Common revamp last October has given Walker and his team pause for thought. One of around 200 stores that were updated as part of the annual refurbishment programme across Iceland’s 852 traditional stores, merchandising and format development director Neil Hayes tripled the normal budget for the refit, with a new fascia, new monochrome colour scheme, new staff uniforms, state-of-the-art chillers and freezers, and a new focus on food to go (including a Lavazza coffee machine). The results were “f***ing amazing,” says Walker. “In the first two weeks, sales doubled. With a normal refurb we would be happy with a 2-3% uplift.”
So can we expect the same treatment across the full estate? It’s just an experiment at this stage as the urban village location at Clapham is atypical. Lower-key refits are being carried out elsewhere. But as far as dramatic refits go, this is a fine example of how a relatively small investment can transform the fortunes of a store.
LIDL
Existing stores: 630
Lidl has adopted an identical target to rival Aldi in that it also has plans to double in size (Aldi wants 1,000 stores and Lidl wants 1,500). However, unlike Aldi it’s not going at similar breakneck speed and has set no deadline to achieve its plan.
Lidl Stores At A Glance
It wants new stores (and it’s flexible for a discounter, considering stores between 20,000 and 30,000 sq ft outside London and between 10,000 and 30,000 inside the M25), and has more of a focus on the South East than Aldi, but its year-on-year growth rate of 1.6% is among the slowest of the supermarkets, as is its five-year increase.
However, it has been open that its property strategy during the discounter boom between 2011 and 2015 was more focused on revamping its existing estate rather than opening new stores (which has in some instances seen it undergo a complete rebuild from the ground up). Shop floors are larger, and bakeries, customer toilets (and baby changing facilities) now come as standard.
And a look at the planning pipeline suggests Lidl might be about to speed up when it comes to new stores - it tops the table for planning permissions submitted for new stores in 2016, with 22 more submissions than Aldi.
MARKS & SPENCER
Existing stores: 891
Having battled its frumpy reputation in fashion for years, M&S finally announced a rethink in November 2016.
M&S Stores At A Glance
Going forward 25% of store space currently dedicated to clothes and home will be “repositioned” to make way for bigger and better food ranges, announced CEO Steve Rowe, in order to build a future M&S that was “simpler, more relevant, multi-channel and focused on delivering sustainable returns”.
Sales at the 75 new Simply Food stores opened in 2015/16 are already performing “ahead of expectations” says the retailer, with 250 due to be up and running in total by March 2017 and plans to accelerate this growth in the next two financial years by c100 stores per year.
In picking sites for this major expansion the high-end grocer says it will zoom in on areas with big food to go potential, such as airports and petrol stations, building on existing franchise partnerships with Moto, Compass and BP.
As for its existing sites, though full-blown refurbishments have settled down since the reign of Stuart Rose and Marc Bolland, small touches to improve the look and feel of stores continues with a commitment to 100% LED lighting and a roll-out of its masterbrand black and white logo to all stores.
MORRISONS
Exisitng stores: 507
When Morrisons changed its logo in early 2016, it heralded a statement of intent by new CEO David Potts to “Fix, Rebuild and Grow” the business.
Morrisons Stores At A Glance
After a torrid couple of years (which saw store numbers slump after the failed M-Local venture), the new logo, with its friendly tree motif and lower case lettering, signalled Potts’ desire to take Morrisons back to its roots as a down to earth and friendly place to shop, less about steely futuristic misty veg and more about counters and customer service, which Morrisons was famous for.
Dubbed the Fresh Look programme, aisles were widened, the Nutmeg clothing range was introduced to more stores, cafés were remodelled, car parks were improved and shelters for trolleys introduced. Food to go underwent a massive revamp, with counters and salad bars added. Late last year it had completed 51 refits and said the rejigged stores were “generating sales uplifts”.
It also said it was on track for 100 refits in 2016 and planned to keep doing 100 every year until 2019. The success of the scheme is a fitting tribute to the man charged with making it happen, Morrisons veteran and property director Mark Harrison, who died in January, aged 53.
SAINSBURY’S
Exisitng stores: 1,338
The second Sainsbury’s made its bid for Argos public back in 2015, analysts speculated the multiple could shut up hundreds of the discount chain’s standalone stores. With only short-term leases left on many of its high street outlets, Sainsbury’s could absorb Argos into its own stores, they said, a move it had already signalled with its first Argos franchise opening in May.
Sainsbury’s Stores At A Glance
Five months after completing the acquisition for the tidy sum of £1.4bn, Sainsbury’s certainly seems to be heading in that direction, with CEO Mike Coupe confirming last month his plans to open an Argos within all the retailer’s larger stores.
Repurposing existing space in its big box supermarkets rather than opening a raft of new stores is clearly the focus, with a clutch of mini Habitat concessions also announced in 2016, the first of which was unveiled only a month later in its refurbished Nine Elms store, and Lloyds pharmacies now up and running in many stores after the acquisition in 2016.
Plans for its convenience estate are the exception. As its rivals backed away from the format, Sainsbury’s opened 69 new c-stores last year as well as plans under way to experiment with new micro stores focusing largely on fresh produce.
TESCO
Existing stores: 2,467
Whether it was rioters attacking Tesco stores with petrol bombs to protest against new Tesco stores in the area, brand new £22m stores being mothballed because Tesco couldn’t afford to open them, or the cataclysmic 2015 writedown of the value of the property it held (a monster £4.7bn), in recent years the words Tesco and property have spelled nothing but doom.
Tesco Stores At A Glance
After years of rampant expansion unmatched by any in the industry before or since, Tesco started going into reverse in 2015.
Although it grew the total estate by 1.1% between 2015 and 2016, boosting c-store numbers by 2.5% to 1,534, the number of supermarkets dropped by 1.1% down to 914.
However, Tesco does have planning permission applications for 13 stores in the pipeline. And the £3.7bn acquisition of Booker means Tesco could rocket ahead again if the CMA doesn’t overly hamper the deal.
In the meantime, UK CEO Matt Davies, who inherited a tired UK estate, has focused on the in-store experience, vowing to spend big on a UK store “refresh”. As well as sprucing it up, Tesco has also introduced a range of high street brand concessions like Holland & Barrett and the Arcadia group, including Dorothy Perkins, Wallis, Evans and Burton
WAITROSE
Existing stores: 380
Inspired by US grocers where it’s (apparently) perfectly normal to eat your dinner in a supermarket, Waitrose is transforming its stores into destinations with supper clubs, cookery classes and even jazz while you sip on a glass of house white at one of its seven wine bars.
Waitrose Stores At A Glance
“We’re trying to change customers’ image of what a supermarket is,” says Naomi Gillies, head of future planning and sustainable development at Waitrose. “Our customers are about brilliant product and brilliant service and so we think we can help tap into that space, using chefs to help customers understand how they can prepare that food at home, and make it really sociable.”
Three pilots at Barbican, Twyford and Chandler’s Ford trialling the new format were introduced in November 2016 “allowing us to turbo our investment and test a different approach to how we refurbish our branches,” adds Gillies.
Core at all three is revamping the retailer’s foodservice proposition, adding 50 brand new SKUs, building more sushi counters (bringing the total in branches to 30) and overhauling meat & fish counters with a focus on prepared dishes. This investment in the existing estate will accelerate, says Gillies, with the majority of stores set for investment over the next three years.
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