It is broadly assumed that in uncertain economic times the grocery retail industry continues to prosper. It would be easy to also assume that the retailers that prosper most would be those offering cost-conscious consumers the opportunity to save the most money - ie the discount or value retailers.
And they do fare well, judging by the list of names that has made the cut in the IGD's first-ever report on the 10 UK high-street retailers to watch. But, paradoxically, so do those operating at the opposite end of the pricing spectrum.
IGD's list, which is ranked in no particular order (see right), is dominated by operators at both extremes of the market. Fixed-price or discount retailers such as Wilkinson, Home Bargains and Poundland feature heavily - as do stores offering indulgence, ethics or provenance such as Carluccio's, Abel & Cole, Leon and Hotel Chocolat. However tight finances become, people like to treat themselves, it seems.
For all these retailers, the key to their success is that they offer value regardless of which end of the spectrum they operate. A neat trick seeing as value does not mean the same thing to all shoppers. But what makes these retailers stand out from the crowd is not just their fortuitous price positioning, it is also their ability to read consumer trends with unerring accuracy.
The study deliberately focused on UK high street retailers that sell food and drink outside the traditional mainstream food and grocery channels of convenience, supermarkets and superstores.
The thinking was that most people in the industry have a good idea of what the multiples are up to in terms of their pricing and ranging, but not of the smaller players operating at the periphery of the grocery market - offering only a selected food offer, such as Wilkinson, say, or a hybrid proposition such as part-café, part-deli Carluccio's.
In many ways, it is these retailers that provide the real insights into how food and drink retailing is evolving, says Gavin Rothwell, senior business analyst at IGD and the report's author. Small and fleet of foot, they're quick to respond to consumer trends and, more importantly, they're thriving despite the dominance of the grocery sectory by the multiples.
"Consumers care about price, provenance, health, ethical positioning and indulgence," says Rothwell. "And they want to be able to shop in different ways rather than just walking through the shop entrance. These trends are only going to become stronger in the coming years."
Stories of the death of the high street have been premature, agrees IGD chief executive Joanne Denney-Finch . "In recent years, there have been difficult trading conditions on the British high street, but these nominees demonstrate that rich pickings remain for high street businesses that satisfy the complex needs of UK shoppers," she says.
Though shoppers may actively seek out more low price goods when the economic going gets tough, they also tend to want to splash out on occasion - and because they've saved money on the cheaper own label goods, say, they'll have more money for such luxury items. Others will take the view that they'll buy fewer, but more premium goods.
"Value means different things to different shoppers," she explains. "The same shopper often hunts for value in terms of low price for one product, but sees value in terms of a combination of price, product and experience for another."
Unlike the big boys, smaller retailers that try to offer one-stop shop experiences can struggle. The clear polarisation among the 10 on the list between premium and low price shows there are ways to avoid getting squeezed in the middle of the market in the so-called "hourglass effect".
Having a genuinely innovative proposition helps and the 10 share an elusive 'X-factor' that others could find hard to imitate, says Rothwell. "
The multiples find it easy to tick the boxes of price focus, provenance and indulgence because of the scale of their offer. But these operators all succeed because of something extra," he says.
Some, such as Majestic Wine, make specialist knowledge their USP, while others use their unique in-store environments to tell a compelling story about their products or services.
"There is a lot of retail theatre involved in these brands, which gives them a certain wow factor, making them attractive to consumers and investors," he says. "While it's difficult to capture the full essence of any of these retailers with a few ticked boxes on a chart, you can see they all create a buzz in similar ways. They all offer a very personal service. Carluccio's and Abel & Cole, for instance, use their strengths to create a sense of value for customers, who leave feeling nicely treated."
Many of the chosen 10 have come up with novel ways to engage with their customer base. Hotel Chocolat, for instance, has an online tasting club, which has 100,000 members. "Hotel Chocolat has used the internet to ensure it has the most up-to-date customer insight," says Rothwell. "It's using the same tools to enter a difficult US market."
Starbucks has distinguished itself from other high-street coffee shops by selling CDs. The scheme has worked so well that customers now associate the brand with new, cutting-edge music, says IGD. At the value end of the spectrum, meanwhile, Poundland has impressed with its strong promotional management and constant rotation of offers.
A multi-channel strategy is also a common attribute, with four of the 10 to watch already fully multi-channel and two more moving in this direction. The internet has been a key growth driver for the likes of Hotel Chocolat, Majestic Wine and Abel & Cole, which is now also planning a move into bricks and mortar with a range of farm shops. Meanwhile, Wilkinson and Poundland have strong online aspirations.
Whether aided by superb market insight or by sheer good fortune, these 10 retailers have all successfully tapped into consumer trends. The story is very much one of low price or premium indulgence -woe betide those occupying the middle ground. n
Ten retailers To Watch
Majestic Wine
This wine warehouse has an innovative model and location strategy that has helped boost customer product knowledge and awareness. The company is playing a key role in adding value to the entire category. "Majestic touches its customers in a special way, improving their knowledge and enabling them to become connoisseurs. It stretches them and encourages them to learn by trying different products," says report author and senior IGD analyst Gavin Rothwell.
Poundland
Singled out for its strong value proposition across a range that successfully fuses consistency and exciting new products, Poundland also boasts an efficient supply chain that allows for a strong range of promotions. The business has been trading since 1990 and reached the 100-store milestone in 2003, and now has more than 150. Owned by venture capitalist Advent Capital, the retailer has two distribution centres in the West Midlands with joint capacity of more than 500,000 sq ft.
Pret A Manger
Pret's reinvention of the fast food model, with a strong focus on freshness, ethics and quality, made it an attractive target for buyers and in February, a majority stake was sold to Bridgepoint Capital and Goldman Sachs for £345m. The sandwich company, which has stores in the UK, US and Hong Kong, plans to open 30 more outlets this year, taking the total to 200. In the UK, the London-centric retailer is looking to expand into other regional centres.
Starbucks
It has blazed the trail for the global coffee shop revolution and continues to innovate and refine its offer, while pursuing complementary diversification opportunities. Starbucks has suffered much negative publicity in the US, but has continued to grow strongly in the UK - its largest international market. The company places a strong emphasis on growth, averaging a rate of more than 50 new stores a year. Margins of 12% are among the best in the sector.
Wilkinson
With 280 stores and a £1.2bn turnover, fixed-price retailer Wilkinson has become a major player on UK high streets - and since 2006 has expanded its limited grocery offer to now include chilled, fresh and ambient grocery as well as confectionery. Also developing an own label offer, it hopes to expand the 600-strong food and drink range even further. Though it is yet to achieve full national representation, its household penetration already exceeds 35%.Ten retailers To Watch
Abel & Cole
Abel & Cole still leads the way in online organic boxed delivery schemes despite other new entrants to the market, including the multiples. Its success is underpinned by a strong marketing strategy, its focus on seasonality and strong ethical credentials. The company was founded in 1988 by Keith Abel, who began selling potatoes door-to-door in south London with an initial £2,000 investment. He recently sold his stake to Phoenix Equity Partners in a deal that valued the business at £40m.
Carluccio's
Carluccio's owes its success to its highly innovative hybrid retail/café model, broad mass-market appeal and sector-leading sales per unit. Unsurprising then that property tycoon Richard Caring, the investor behind The Ivy, Le Caprice and J Sheeky, bought a 3% stake last May - a holding he has since increased to 12%. Analysts commonly cite the substantial growth opportunities, home and abroad, for Carluccio's, which currently has 34 outlets.
Home Bargains
Merseyside-based deep discount chain Home Bargains was recently granted planning permission to build a 10-storey distribution centre and retail training facility in Liverpool. The 30-year-old family business sells toiletries, cosmetics and household goods but food and alcohol accounts for more than 40% of the offer. The retailer's focus is on branded lines and especially brand leaders. Home Bargains is looking to add a further 360 stores to its current 138 tripling its turnover to £1bn.
Hotel Chocolat
Hotel Chocolat is all about luxury chocolates with strong provenance. The business, which is also proud of its ethical stance, was launched in 1987 as a catalogue business and rebranded as Hotel Chocolat in 2003. It now has 27 stores, run by well-trained, knowledgeable staff, and further expansion is in the pipeline. It also has a strong online business and is using this as the basis of expansion plans for the US.
Leon
Private equity-backed Leon offers a successful fusion of fast, healthy and tasty takeaway and eat-in food in a quirky environment. The company creates an 'X-factor' by blending its strong focus on understanding customers and engendering a 'Leon' spirit. It has some work to do, however, to ensure consumers do not start favouring lower-cost lunchtime market rivals. Lunchtime office deliveries could offer a potential channel for further growth, suggests the report.
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