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Viewing report
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Non-Food Sales in Supermarkets Market Assessment 2010
Key Note Publications Ltd, Nov 2010, Pages: 105
Although the multiple grocery chains have offered non-food basics such as toiletries, disposable paper products and cleaning items since first opening in the 1950s, it was the abolition in the 1960s of Resale Price Maintenance (RPM) on most products, whereby a manufacturer and its distributors agreed that the latter would sell the former’s product at certain prices that enabled supermarkets to compete on price. The relocation to larger out-of-town sites in the 1980s also gave many supermarkets the additional space required for extending their non-food offering. Walmart’s acquisition of ASDA in 1999 cemented the concept of selling non-food products other than basic household goods on any significant scale and the practice is now an important activity of the major multiples, not least because it offers better profit margins and the opportunity to differentiate one chain’s offering from that of its competitors. Tesco is now the largest retailer of non-food in the UK, having overtaken the likes of Argos, and takes a multi-channel approach with different store formats, online and catalogue sales and the opening of standalone non-food stores. The development of online shopping facilities has also enabled the likes of Tesco to deliver large electrical appliances, music and books and gardening equipment, etc., direct from manufacturers and warehouses and August 2009 saw the opening of Tesco’s first purpose-built facility for imported non-food items based in Teesport. In addition to selling non-food items, the supermarkets also now sell services and utilities, capitalising on their trusted brand, maximising the information derived from loyalty schemes and forging partnerships with other companies.
Some of the non-food brands, notably ASDA’s George clothing brand, have been phenomenally successful, while stores may also ‘cherry pick’ lines, taking advantage of the time and investment that manufacturers and specialist traders have put into knowing their markets and varying products on offer according to the season. Both Tesco and ASDA have made no secret of their intent to extend their non-food offering, while Sainsbury’s and Morrisons have both re-launched extended ranges, with the latter also considering the introduction of an e-commerce site and John Lewis products are available via its supermarket partner, Waitrose.
Convenience, value and choice are the obvious reasons for consumers to choose supermarkets in which to purchase non-food goods and, where once a lack of specialist knowledge might have been a stumbling block for supermarkets, Tesco has been at the forefront of change — employing more than 1,000 Tesco Tech support staff to advise on electrical goods such as mobile phones, etc. In the last financial year, Tesco alone increased its non-food sales revenue by 6.2% from the previous year to reach £13.1bn in February 2010.
The recession of 2008/2009 has, however, caused shoppers to cut back on certain discretionary spending which has impacted the non-food market and slowed down growth within the sector. With space at a premium and stricter planning regulations intended, opportunities for further growth in the UK are limited, while the practices of the major supermarkets are to come under scrutiny from the new Government’s intended supermarket ombudsman. Tesco, which already has stores in Korea, the People’s Republic of China (PRC), Thailand, Japan and a joint venture in India, is intent on increasing its hold in Europe and Asia. In September 2010, it made a bid for 61 stores across Malaysia, Thailand and Singapore, that French rival, Carrefour, was putting up for sale, but was dropped from going forward to the next round of bidding scheduled for November 2010. The British chain has been trialling a franchise scheme in South Korea in which it and the franchisees share opening costs and profits. Representing an entirely new strategy for growth, Tesco’s international head, Philip Clarke, who will become Chief Executive (CE) in 2011, has said this may be a future growth model for other countries, as it strives to catch — and possibly overtake — international rivals, Walmart and Carrefour, in its quest to become the world’s leading supermarket chain.
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