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Supermarket Services Market Assessment 2003
Key Note Publications Ltd, Jan 2003
This Supermarket Services report updates the 2001 Market Assessment report of the same name, covering the range of services offered by supermarkets. The report examines the apparent rise of the one-stop shop and consumer behaviour related to this trend. It identifies consumer dynamics and market conditions that affect the development of supermarket services, illuminating the successes and flaws of those on offer.
The major supermarket chains have been engaged in expanding their online services, which include home delivery and financial products. New store formats have been put in place to allow for more hospitable cafés and also pharmacies. As the supermarkets expand their services so the debate broadens surrounding the threat they pose to independent retailers.
Tesco continues to dominate supermarket retail, including online home shopping and financial services. Its expansion overseas has now stretched to Japan - a notoriously difficult market for Western supermarket operators to successfully gain entry to. Vying for second position are Sainsbury's and Asda. Both hold market shares of 16% to 17%, but backed by Wal-Mart's resources and buying power, Asda seems set to overtake Sainsbury's in the near term. Morrisons continues to place emphasis on its quality food message, while maintaining a valuable alliance with Hsbc. The market is also maintaining a close eye on Safeway and Somerfield, both of which are takeover targets for the large chains.
The expansion of supermarket services and one-stop shop formats has resulted in a demand for more floorspace. As a result of the Competition Commission's report in 2000, it has become increasingly difficult for multiple retailers to expand their sites and gain permission for new out-of-town stores. Consequently, the major supermarket chains have been looking at takeovers of other chains as a valuable means of expansion. This coincides with the return of supermarkets to the neighbourhood and the expansion of their convenience-store brands, such as Tesco Express and Sainsbury's Local.
Expansion in the convenience sector and the broadening of in-store services have attracted the attention of the Department of Trade and Industry. This is in particular relation to in-store pharmacies. Although these are popular with consumers, the Government is worried about the threat to independent chemists and other local retailers. The supermarkets continue to be adamant that they respond purely to the consumer and not the other way round.
The research by Bmrb Access, commissioned by us specifically for this report, highlights some interesting consumer issues. Over two-thirds of those surveyed wished to see supermarkets expand their services. This is a marked increase since the 2001 edition of this report, which showed that only around a quarter of respondents sought a wider range of services. However, it seems that many of the services on offer appeal largely to the affluent AB social grade. This is particularly the case with online services, where it appears that less affluent households are not as frequently connected to the Internet.
Although use of the Internet by more mature adults - so-called 'silver surfers' - has grown substantially, the young continue to dominate services provided in this arena, a trend supported by the Bmrb Access survey's findings that the young are generally more open to the introduction of further supermarket services.
Financial products sold over the Internet by supermarkets still require greater market penetration. However, consumers are generally trusting of supermarket brands, so that this trust merely needs extending to financial services. With analysts predicting dramatic reductions in the cost of supermarket financial products in comparison with high-street banks, this will no doubt happen and could well result in a knock-on effect. The supermarket's strength lies in consumer visibility and retail style marketing.
The Expenditure and Food Survey 2001/2002, published by National Statistics, provides useful information on the population's spending habits. The survey shows that UK households are spending an average of £380.30 per week on services. Of this figure, £52.30 is being spent on leisure services and £5.20 on personal services. Supermarkets recognise the importance of tapping into these markets and attracting consumers at the same time that they are doing their grocery shopping.
Figures for expenditure on meals out and takeaways continue to rise each year as people increasingly have less time and, arguably, more cash. Supermarkets continue their efforts to refurbish their in-store cafés, making them more accommodating and offering a more extensive menus, in order to take more of the £10.90 per week being spent on restaurants and cafés, according to the Expenditure and Food Survey.
Holiday and travel services dominate leisure expenditure so it would not be surprising to see supermarkets expand their online capabilities into this arena. At present, the extent of their participation is largely limited to schemes that exchange `air miles' for loyalty card points.
With nearly 80% of the UK population owning a mobile telephone, it is not surprising that both Tesco and Sainsbury's have entered this sector. British households spend an average of £9.30 per week on telecommunications, a sure-fire signal to supermarkets that this could well be a lucrative market to move into. Tesco plans to launch a fixed-line telephone service, which will undercut BT, and the company's highly developed IT systems should be well-equipped to make a success of it, as signs of their success with online grocery shopping would seem to bear out.
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