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Supermarket Services Market Assessment
Key Note Publications Ltd, January 2001
In this extension of Key Note's Non-Food Sales in Supermarkets report of June 1999, this report looks in more detail at the range of services which supermarkets offer. Supermarket companies which are putting most effort into offering services are highlighted, and the outlook for further expansion of services is considered: both the positive factors and the constraining ones. The big service trends in 2001 include online ordering, home delivery, pharmacies and healthcare, and even entertainment. Financial services include cash-back, which is virtually universal.
Three chains dominate the supermarket sector. Tesco alone has nearly a quarter of the UK grocery market by value, almost 23% at the end of 2000. Sainsbury's is still a way behind at just under 17%. Asda has around 14.5% These three supermarket chains alone take around £54 of every £100 spent on groceries.
The Competition Commission recommended in 2000 that the Director General of Fair Trading would have to approve any application by Asda, Morrison, Safeway, Sainsbury's or Tesco to buy a store from another company, extend one of its own, or build a new one of more than 11,000 square feet, within 15 minutes drive of any of its existing supermarkets. This axe has not fallen, but it remains poised as a warning to the multiples against any significant physical expansion within the UK. There is no such potential barrier to virtual retailing on the Internet, and this will be a tough competitive arena.
Planning policy, which presumes against new out-of-town retail developments, was reinforced in March 1999 by the Minister for the Regions and Deputy Prime Minister, John Prescott, and again in 2000 in response to the Competition Commission's report on supermarkets. It will remain very difficult for multiple retailers to get permission for new out-of-town stores, because of the environmental damage caused by building on green-field sites with poor or no public transport links.
The outcome of government policy -- few if any new supermarkets outside towns -- combined with the Competition Commission's recommendations for restrictions on the expansion of individual chains, creates a difficult climate for the multiples. The smaller, urban formats which many are adopting are being forced on them, and they are making the best of it. The increasing emphasis on customer services is another consequence of the difficulties faced by the multiples in getting permission for new stores.
People's spending habits are another factor. Leisure goods and services are now the largest component of households' spending and are far too large a market for supermarkets to ignore. In 1999/2000, households in the UK spent an average of £59.60 a week on food and non-alcoholic drinks, and £62.40 on leisure goods and services (of which £43.90 was on leisure services). Household services took £18.90 a week on average, and personal goods and services, £13.90. These three categories translate into nearly £88bn annually.
Women have to spend more and more on services because, increasingly, they lack time to do everything that is expected of them. Almost 70% of all women of working age are employed or self-employed. One-stop shopping for everyday goods and services is becoming essential because women cannot fit much more into their lives, and yet are still responsible for most of their households' shopping.
Key Note's National Opinion Poll (NOP) survey found that almost four people in ten obtained cash along with their groceries in the previous 6 months -- rising to nearly six in ten of the affluent ABs. On the other hand, only 5% had a credit card issued by a supermarket. Supermarket savings accounts are held by even fewer people than have supermarket credit cards. There appears to be little demand for full financial services from supermarkets.
Supermarket Internet service providers (ISPs) are tapping into the female market more successfully than ISPs overall. While 3% of women said their ISP is a supermarket, only 2% of men did so. This is a branding issue. A Tesco or Waitrose e-mail address may not sound serious enough to men, but for many women, the brand names convey familiarity and reliability. Yet, despite the growth in Internet connection, only 2% had ordered from a supermarket website in the previous 6 months.
Cafés in supermarkets are popular. More than one person in three had eaten a meal in a supermarket café in the previous 6 months. Almost one person in five had obtained a prescription from an in-store pharmacy in the past 6 months, suggesting that independent pharmacists are right to be worried.
Pent-up demand for supermarkets to offer a wider range of services is far from massive. Only just over a quarter of our interviewees would like to see more services. Slightly over one in five believe that supermarkets should concentrate on food and forget about services unrelated to this core activity. Men are more in favour of this than women. The young are much keener than the elderly on the concept of supermarket services. A third of the over-65s think supermarkets should be all about food, compared with just over one in ten of the 15 to 24 age band. This lack of opposition to services among the young is a pointer to the future.
The main profit potential appears to be in take-away foods, pharmacies and mobile phone services using existing networks (where Sainsbury's has already achieved a coup.) The chains with the best indicators of success include Tesco, Sainsbury's, Morrison, Waitrose and T&S. Budgens is up there too. Tesco and Sainsbury's are the supermarket chains putting most effort into expanding services (although Sainsbury's says its focus is on food). Sainsbury's is working to overcome the practical difficulties of home deliveries. Waitrose and Morrison put food quality first, although Morrison also has an important strategic alliance with Hsbc for financial services, and Waitrose is quickly building a presence in electronic retailing. Budgens and T&S have homed in on the concept of the neighbourhood service centre. So far, T&S has taken it further than Budgens.