Some experts say there are too many symbol groups and that this is diluting the competitive power of the independents. Rod Addy reports
As the major multiples and co-ops have increased their presence in the c-store sector, independent retailers have been forced to take tough business decisions. Some have opted to close up shop; others have decided that the best way to prosper is to join a symbol group.
That much is borne out in the latest figures on the convenience market from IGD. As we revealed on page 36, IGD’s research shows that store numbers in the symbol group sector rose by 3.6% last year, largely through recruitment of retailers from the independent sector. “This partially accounts for the decline in non-affiliated independents of 7.4% - although a large proportion of these have also left the market altogether,” says IGD.
Such growth will be seen as a positive development by those running the country’s symbol groups. But some experts believe there are too many symbol groups and they argue that this is diluting the competitive power of the independent sector.
Professor Jim Quinn, director of business studies and language programmes at the School of Business Studies at Trinity College, Dublin, is one of those raising such concerns and calling for consolidation. He says: “There is still too much fragmentation. There are around 13 symbol groups, which is not going to be helpful in future in independents’ battle with the multiples.”
As the UK independent sector has fragmented over the past 75 years, retailers have gravitated to many different symbol groups. This, he says, has led to a confusion of symbol group brands in the UK.
In Ireland, however, a few major brands such as Spar, SuperValu and Centra have driven growth. These, in turn, are supplied by a handful of core wholesalers.
The results are startling. According to figures compiled by Quinn, the market share of the independent grocery sector in Ireland is 40-45%. In the UK, it is less than 10%, having fallen steadily since the 1960s.
Part of the reason for this divergence, says Quinn, is that the UK has sold out to a market theory obsessed with price as the measure of consumer interest. All competition in the UK has this at its heart, he says. Consequently, wholesalers use their symbol groups as weapons to wield against rival symbol groups, rather than banding together, and the multiples have been given free rein. “The independent sector in Britain has been decimated. There has been an over-focus on cost and efficiency, and an under-focus on marketing and brand building,” says Quinn.
Elsewhere, governments have tended to take a broader view on retail competition, limiting the bigger supermarkets’ power and nurturing independents, he says. Unless a similar perspective is developed in the UK, independents will be driven out of business in droves and consumer choice will suffer. And while the current climate prevails, symbol groups must unite to survive.
Quinn’s comments are partially echoed by Professor Leigh Sparks from the Institute of Retail Studies at the University of Stirling. He says the number of symbol groups has led to drastic differences in the standards
of stores affiliated to them. “This variation is one of the major problems symbol groups have to tackle. There needs to be more consistency. If there’s one thing the top multiples have tried hard to achieve, it’s consistent store standards.”
Quinn agrees. He says there is a need for more co-operation between members on driving consistent standards if the UK’s symbol groups are to work well. He adds: “There needs to be a high degree of discipline among retailers and the wholesaler needs to be quite tough. You need to focus on a small number of brands to be most effective. Whether that’s through acquisition or collaboration is debatable.”
But Spar MD Jerry Marwood says: “You could have one big symbol group and still have rubbish stores. And you can get good and bad stores among supermarkets such as Tesco, Asda or Sainsbury, so poor compliance is not an argument for consolidation.”
Another argument for consolidation among symbol groups is that it would lead to better buying terms, which could enable retailers to drive down prices. And that would be crucial in fighting off the multiples.
Richard Krajewski, a partner in the corporate finance team at KPMG that led the sale of Londis to Musgrave, says: “As with everything in retail and grocery, where there is price deflation, it pays to be bigger. If you’re not, your prices aren’t good and people will go elsewhere.”
But while this is an argument for symbol groups per se, Krajewski says the proliferation of groups is not yet at the point where it is weakening the independents. “That could be an argument for consolidation, but I don’t think we’re there yet,” he says.
Marwood says more symbol groups means more competition, which can improve prices and standards. “If you’re an independent looking to compete in the market, there can never be too many symbol groups.”
However, he recognises there needs to be a trade-off between healthy competition and buying power. “If the issue is whether symbol groups should combine powers to get more buying power and drive efficiency, there’s probably an argument for that.”
Krajewski argues that consolidation will happen naturally, as well as by acquisition or collaboration. The best symbol groups will win over all the retailers, while the rest will fold. “Why pay more for another symbol group when you can just recruit more retailers? That’s what we saw during the Londis deal - Costcutter and Nisa launched massive promotions to recruit retailers.”
But Quinn warns that the independent sector could be irreparably damaged in the time needed for such gradual consolidation to occur among the various groups.
What, then, does the future hold? Most accept that symbol groups aren’t the only track for an independent retailer to pursue. As Krajewski says: “You might have to be policed and you may not like that.”
So some retailers will choose to remain truly independent; some will opt for symbol groups; while others will choose to lose even more of their independence by going down the franchising route. What is clear is that a strong symbol group can offer a strong brand identity, which is a key asset. “Would I be more likely to go into an independent shop run by Mr Patel, or a Londis run by Mr Patel? Probably the latter,” says Krajewski.
And as IGD’s latest research shows, more and more independent retailers agree.
Analysis
As the major multiples and co-ops have increased their presence in the c-store sector, independent retailers have been forced to take tough business decisions. Some have opted to close up shop; others have decided that the best way to prosper is to join a symbol group.
That much is borne out in the latest figures on the convenience market from IGD. As we revealed on page 36, IGD’s research shows that store numbers in the symbol group sector rose by 3.6% last year, largely through recruitment of retailers from the independent sector. “This partially accounts for the decline in non-affiliated independents of 7.4% - although a large proportion of these have also left the market altogether,” says IGD.
Such growth will be seen as a positive development by those running the country’s symbol groups. But some experts believe there are too many symbol groups and they argue that this is diluting the competitive power of the independent sector.
Professor Jim Quinn, director of business studies and language programmes at the School of Business Studies at Trinity College, Dublin, is one of those raising such concerns and calling for consolidation. He says: “There is still too much fragmentation. There are around 13 symbol groups, which is not going to be helpful in future in independents’ battle with the multiples.”
As the UK independent sector has fragmented over the past 75 years, retailers have gravitated to many different symbol groups. This, he says, has led to a confusion of symbol group brands in the UK.
In Ireland, however, a few major brands such as Spar, SuperValu and Centra have driven growth. These, in turn, are supplied by a handful of core wholesalers.
The results are startling. According to figures compiled by Quinn, the market share of the independent grocery sector in Ireland is 40-45%. In the UK, it is less than 10%, having fallen steadily since the 1960s.
Part of the reason for this divergence, says Quinn, is that the UK has sold out to a market theory obsessed with price as the measure of consumer interest. All competition in the UK has this at its heart, he says. Consequently, wholesalers use their symbol groups as weapons to wield against rival symbol groups, rather than banding together, and the multiples have been given free rein. “The independent sector in Britain has been decimated. There has been an over-focus on cost and efficiency, and an under-focus on marketing and brand building,” says Quinn.
Elsewhere, governments have tended to take a broader view on retail competition, limiting the bigger supermarkets’ power and nurturing independents, he says. Unless a similar perspective is developed in the UK, independents will be driven out of business in droves and consumer choice will suffer. And while the current climate prevails, symbol groups must unite to survive.
Quinn’s comments are partially echoed by Professor Leigh Sparks from the Institute of Retail Studies at the University of Stirling. He says the number of symbol groups has led to drastic differences in the standards
of stores affiliated to them. “This variation is one of the major problems symbol groups have to tackle. There needs to be more consistency. If there’s one thing the top multiples have tried hard to achieve, it’s consistent store standards.”
Quinn agrees. He says there is a need for more co-operation between members on driving consistent standards if the UK’s symbol groups are to work well. He adds: “There needs to be a high degree of discipline among retailers and the wholesaler needs to be quite tough. You need to focus on a small number of brands to be most effective. Whether that’s through acquisition or collaboration is debatable.”
But Spar MD Jerry Marwood says: “You could have one big symbol group and still have rubbish stores. And you can get good and bad stores among supermarkets such as Tesco, Asda or Sainsbury, so poor compliance is not an argument for consolidation.”
Another argument for consolidation among symbol groups is that it would lead to better buying terms, which could enable retailers to drive down prices. And that would be crucial in fighting off the multiples.
Richard Krajewski, a partner in the corporate finance team at KPMG that led the sale of Londis to Musgrave, says: “As with everything in retail and grocery, where there is price deflation, it pays to be bigger. If you’re not, your prices aren’t good and people will go elsewhere.”
But while this is an argument for symbol groups per se, Krajewski says the proliferation of groups is not yet at the point where it is weakening the independents. “That could be an argument for consolidation, but I don’t think we’re there yet,” he says.
Marwood says more symbol groups means more competition, which can improve prices and standards. “If you’re an independent looking to compete in the market, there can never be too many symbol groups.”
However, he recognises there needs to be a trade-off between healthy competition and buying power. “If the issue is whether symbol groups should combine powers to get more buying power and drive efficiency, there’s probably an argument for that.”
Krajewski argues that consolidation will happen naturally, as well as by acquisition or collaboration. The best symbol groups will win over all the retailers, while the rest will fold. “Why pay more for another symbol group when you can just recruit more retailers? That’s what we saw during the Londis deal - Costcutter and Nisa launched massive promotions to recruit retailers.”
But Quinn warns that the independent sector could be irreparably damaged in the time needed for such gradual consolidation to occur among the various groups.
What, then, does the future hold? Most accept that symbol groups aren’t the only track for an independent retailer to pursue. As Krajewski says: “You might have to be policed and you may not like that.”
So some retailers will choose to remain truly independent; some will opt for symbol groups; while others will choose to lose even more of their independence by going down the franchising route. What is clear is that a strong symbol group can offer a strong brand identity, which is a key asset. “Would I be more likely to go into an independent shop run by Mr Patel, or a Londis run by Mr Patel? Probably the latter,” says Krajewski.
And as IGD’s latest research shows, more and more independent retailers agree.
Analysis
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