Waitrose has thrived on locating stores in affluent catchments, but can it make a long-term success of northern outlets in less well-off areas? Liz Hamson reports
Ask a certain type of man from the Home Counties where his wife shops and the answer is invariably Waitrose. These days, his well-heeled northern counterpart is increasingly likely to give the same answer.
Since kickstarting its expansion north with the acquisition of a tranche of 19 stores from Morrisons in March 2004, Waitrose has been diligently transforming itself from regional to national player.
By the end of last year, the estate had shot up to 173 stores - an increase in floorspace of 24% in just 18 months - and 50% of its sales were coming from outside its heartland of the Home Counties. But, almost two years on from the initial acquisition, and having almost completed the final refit programme, does Waitrose really have the right profile to crack the north?
While some stores are performing strongly, others may be proving somewhat harder to assimilate, suggests a catchment survey carried out by location planning and market analysis company CACI.
The key demographic groups for Waitrose are: wealthy executives (19%), flourishing families (13%) and secure families (10%), according to CACI.
Using its catchment model, ProVision, to examine how closely these tally with shopper demographics in the new areas, Harrogate emerges with the best overall match. Indeed, the three key groups make up 47% of the store’s catchment - above the 42% national average - and wealthy executives represent a whopping 27% of that figure.
Sandbach and Wilmslow in Cheshire also have high levels of affluence, suggesting these stores should also be performing strongly. Durham is harder to read. But while the catchment study reveals that only 8% of the store’s potential shoppers are wealthy executives, there are plenty of others from affluent groups, says Paul Langston, associate director of location strategy, at CACI.
Not so Sheffield. He points out that the store’s catchment has high proportions of households in the struggling families and blue-collar groups, which fit the Asda or Aldi profile - but not Waitrose.
Indeed, the catchment contains only 20% of Waitrose’s key groups and the average income is just £27,000 - significantly lower than the £34,000 average across the Waitrose estate. It will have to appeal to groups such as aspiring singles to make a success of the location in the long term, believes Langston. “It has a poor demographic fit and so raises the question as to why Waitrose purchased this store if it didn’t have to,” he says. “The likelihood was that it did have to as part of the package - but it does at least allow it to protect the four other stores it has close by.”
Similar situations, where the stores do not closely fit the catchment, can be seen elsewhere across the country, for example in Barry, South Wales.
Moving into less affluent areas as it expands north raises the question of whether Waitrose will be forced to adapt its offer and price points, Langston argues. However, he adds, it has already gained experience trading in less affluent areas, one of the least being the West Midlands, which has an average household income of £30,259.
Moreover the poorer areas in the north are counterbalanced to an extent by areas of extreme affluence. “This is especially true of Wilmslow and Harrogate, where the average household income is £43,250 and £37,819 respectively,” he notes.
A more pressing issue, suggests Langston, is the handful of larger stores it now has to contend with. The average size of a Waitrose store in the south is 17,000 sq ft. However, this increases to 24,000 sq ft in the new northern stores, with its Willerby store in Hull clocking in at 34,000 sq ft, double the size of a standard store.
Langston believes this could cause serious problems for the multiple. “Waitrose is now faced with larger stores with much lower trading densities. Of the eight new northern stores, all but one fall in the bottom half of the estate in terms of trading density. We predict that the Otley store will have the worst trading density, closely followed by Willerby.”
Waitrose is already using non food to fill the space in the larger stores. Willerby features an extended non food offering and Sheffield a small range of homewares, for instance.
Although there may be pricing issues, Jonathan Pitkänen, retail analyst at Fitch Ratings, believes it is unlikely to offer lower prices as this would undermine its national pricing policy. But it could go for more promotional activity, he says.
He adds that he would be surprised if more than a handful of the new stores weren’t a success and that, even if they were not, Waitrose would be unlikely to dispose of them.“The Competition Commission is going to limit the acquisition potential of the other chains. It could still potentially sell to Sainsbury, but its pockets aren’t that deep at the moment,” he reasons.
Andrew Kasoulis, retail analyst at CSFB, thinks the acquisitions will ultimately prove a win-win for Waitrose. “I don’t think they’ve had to take on any stores that they don’t want. There may be stores where they’re experimenting with how far down the demographic scale they can go. I think they’re net buyers rather than sellers - don’t forget they’re strong in a sector that is one of the only sectors where the trend is upwards - fresh food. They’re positioned in a market that is growing.
“As for pricing, they’ve already been addressing it systematically across the chain - I don’t think they would address it on a region-by-region basis.”
Waitrose certainly doesn’t have any doubts about its new stores. In a UK grocery market worth £110bn, it trades in catchment areas contributing about a third of that and believes it can grow its current sales from £3bn to between £6bn and £8bn, according to one analyst.
A Waitrose spokeswoman adds that success does not just depend upon having a close demographic match. She says: “The appeal of Waitrose is far broader than the narrow demographic segments that are described by CACI. Our own internal research shows that our appeal goes well beyond the stated profile. Indeed, we feel that a love of good food goes beyond demographic boundaries.
“This is demonstrated by the fact that our newly acquired branches are exceeding expectations and performing in line with our portfolio of established branches. Sheffield, for example, has been one of the most successful branch openings ever.”
That may be so now. The real test for the Sheffield store and others acquired in Waitrose’s march north will come when the novelty factor has worn off.
Ask a certain type of man from the Home Counties where his wife shops and the answer is invariably Waitrose. These days, his well-heeled northern counterpart is increasingly likely to give the same answer.
Since kickstarting its expansion north with the acquisition of a tranche of 19 stores from Morrisons in March 2004, Waitrose has been diligently transforming itself from regional to national player.
By the end of last year, the estate had shot up to 173 stores - an increase in floorspace of 24% in just 18 months - and 50% of its sales were coming from outside its heartland of the Home Counties. But, almost two years on from the initial acquisition, and having almost completed the final refit programme, does Waitrose really have the right profile to crack the north?
While some stores are performing strongly, others may be proving somewhat harder to assimilate, suggests a catchment survey carried out by location planning and market analysis company CACI.
The key demographic groups for Waitrose are: wealthy executives (19%), flourishing families (13%) and secure families (10%), according to CACI.
Using its catchment model, ProVision, to examine how closely these tally with shopper demographics in the new areas, Harrogate emerges with the best overall match. Indeed, the three key groups make up 47% of the store’s catchment - above the 42% national average - and wealthy executives represent a whopping 27% of that figure.
Sandbach and Wilmslow in Cheshire also have high levels of affluence, suggesting these stores should also be performing strongly. Durham is harder to read. But while the catchment study reveals that only 8% of the store’s potential shoppers are wealthy executives, there are plenty of others from affluent groups, says Paul Langston, associate director of location strategy, at CACI.
Not so Sheffield. He points out that the store’s catchment has high proportions of households in the struggling families and blue-collar groups, which fit the Asda or Aldi profile - but not Waitrose.
Indeed, the catchment contains only 20% of Waitrose’s key groups and the average income is just £27,000 - significantly lower than the £34,000 average across the Waitrose estate. It will have to appeal to groups such as aspiring singles to make a success of the location in the long term, believes Langston. “It has a poor demographic fit and so raises the question as to why Waitrose purchased this store if it didn’t have to,” he says. “The likelihood was that it did have to as part of the package - but it does at least allow it to protect the four other stores it has close by.”
Similar situations, where the stores do not closely fit the catchment, can be seen elsewhere across the country, for example in Barry, South Wales.
Moving into less affluent areas as it expands north raises the question of whether Waitrose will be forced to adapt its offer and price points, Langston argues. However, he adds, it has already gained experience trading in less affluent areas, one of the least being the West Midlands, which has an average household income of £30,259.
Moreover the poorer areas in the north are counterbalanced to an extent by areas of extreme affluence. “This is especially true of Wilmslow and Harrogate, where the average household income is £43,250 and £37,819 respectively,” he notes.
A more pressing issue, suggests Langston, is the handful of larger stores it now has to contend with. The average size of a Waitrose store in the south is 17,000 sq ft. However, this increases to 24,000 sq ft in the new northern stores, with its Willerby store in Hull clocking in at 34,000 sq ft, double the size of a standard store.
Langston believes this could cause serious problems for the multiple. “Waitrose is now faced with larger stores with much lower trading densities. Of the eight new northern stores, all but one fall in the bottom half of the estate in terms of trading density. We predict that the Otley store will have the worst trading density, closely followed by Willerby.”
Waitrose is already using non food to fill the space in the larger stores. Willerby features an extended non food offering and Sheffield a small range of homewares, for instance.
Although there may be pricing issues, Jonathan Pitkänen, retail analyst at Fitch Ratings, believes it is unlikely to offer lower prices as this would undermine its national pricing policy. But it could go for more promotional activity, he says.
He adds that he would be surprised if more than a handful of the new stores weren’t a success and that, even if they were not, Waitrose would be unlikely to dispose of them.“The Competition Commission is going to limit the acquisition potential of the other chains. It could still potentially sell to Sainsbury, but its pockets aren’t that deep at the moment,” he reasons.
Andrew Kasoulis, retail analyst at CSFB, thinks the acquisitions will ultimately prove a win-win for Waitrose. “I don’t think they’ve had to take on any stores that they don’t want. There may be stores where they’re experimenting with how far down the demographic scale they can go. I think they’re net buyers rather than sellers - don’t forget they’re strong in a sector that is one of the only sectors where the trend is upwards - fresh food. They’re positioned in a market that is growing.
“As for pricing, they’ve already been addressing it systematically across the chain - I don’t think they would address it on a region-by-region basis.”
Waitrose certainly doesn’t have any doubts about its new stores. In a UK grocery market worth £110bn, it trades in catchment areas contributing about a third of that and believes it can grow its current sales from £3bn to between £6bn and £8bn, according to one analyst.
A Waitrose spokeswoman adds that success does not just depend upon having a close demographic match. She says: “The appeal of Waitrose is far broader than the narrow demographic segments that are described by CACI. Our own internal research shows that our appeal goes well beyond the stated profile. Indeed, we feel that a love of good food goes beyond demographic boundaries.
“This is demonstrated by the fact that our newly acquired branches are exceeding expectations and performing in line with our portfolio of established branches. Sheffield, for example, has been one of the most successful branch openings ever.”
That may be so now. The real test for the Sheffield store and others acquired in Waitrose’s march north will come when the novelty factor has worn off.
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