In an expanding market over several decades, superstore operators grew their businesses in the UK. With the development of the country’s road network, many ring roads were built with, more often than not, a sparkling retail palace at their intersections. In addition to organic, capital-fuelled growth, the expanding players also adopted robust acquisition strategies that saw high street names such as Fine Fare, Hillards and Wm Low integrated into the winners’ fascia.

Those strategies ultimately led to a highly concentrated industry dominated by four major players, with one standout market leader in the form of Tesco. The ‘big four’ arguably became institutionalised by the then Competition Commission as it sought an industry that had four robustly competing national players.

“Hungrier, more focused and better retailers are challenging”

The Commission’s interest reflected a maturing industry. In addition to organic development, particularly to capture non-food opportunities which, it has to be said, have only partially materialised, material M&A activity was also in tow. M&A further concentrated the industry as the big four bought share from the industry’s ‘soft underbelly’ rather than taking it only through their own stores. Indeed, that softness was an important component of growth by the major players over the past decade or so.

As markets evolve, so do soft underbellies. In the UK, we have seen the remarkable evolution of an industry where corporatism rather than entrepreneurship on behalf of the big four has allowed hungrier, more focused and, effectively, better retailers to challenge, so much so that in autumn 2013 each of the big four lost share for the first time.

Indeed, the giants now appear flabby and it is their inflated bellies that are feeding more effective retailers to the consumers’ liking. Belatedly, the big four are now taking smelling salts and seeking gym lessons to get back into shape.

However, if those gym sessions do not go well and without ongoing training, it may be the case that Morrisons, Sainsbury’s and Tesco in particular could feed the new breed of supermarkets more in touch with the market for some time to come. One of the above could yet possibly go the way of famous names in the past.

Dr Clive Black is director at Shore Capital Stockbrokers

Topics