Non-Food Sales in Supermarkets Market Assessment 2008
Key Note Publications Ltd, January 2008, Pages: 114
The multiple grocery chains have offered non-food basics such as toiletries, disposable paper products and cleaning items since first opening in the 1950s. However, the abolition in 1964 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, meant that supermarkets could compete fiercely on price. With profit margins on non-food items being higher than those on food, there was more room for manoeuvre, and buying in bulk allowed supermarkets to squeeze suppliers' prices and sell discounted goods. Furthermore, the relocation to larger, out-of-town sites in the 1980s gave many supermarkets the additional space required for extending their non-food offering. ASDA, in particular, focuses on non-food sales, not least because its stores are generally much bigger than those of its competitors. In addition to selling non-food items, the supermarkets are also selling services and utilities, capitalising on their trusted brands, and forging partnerships with other companies.
The non-food offering is a method of differentiating one chain from another in a way that is not always possible with food items. Some of the non-food brands have been phenomenally successful — such as ASDA's George clothing brand, which has helped the chain's clothing sales to outstrip those of Marks & Spencer. Supermarkets can 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. The development of online shopping facilities has enabled the likes of Tesco to deliver large electrical appliances, music and books, gardening equipment, etc. direct from manufacturers and warehouses. Tesco is intent on increasing the value of sales of its non-food offering to equal that of food sales. In its 2006/2007 financial year, its sales revenue derived from the former rose by 11.6%. Its non-food sales were worth £10.4bn worldwide, of which £7.6bn was attributable to the UK alone. Nevertheless, Tesco claims that, at 8%, its share of the UK non-food market is relatively small; it has ambitious plans to fully exploit the potential for expansion. In September 2006, for example, Tesco launched Tesco Direct, a new online and catalogue operation offering general merchandise, some of which cannot be found in Tesco stores. By the end of its 2006/2007 financial year, Tesco also had six trial non-food stores under the Homeplus brand and had extended 23 of its stores to add more than half a million square feet of non-food space.
The apparent power of the supermarkets — particularly Tesco — is such that in May 2006, the Office of Fair Trading (OFT) referred the position of the grocery multiples in the retail sector to the Competition Commission. The OFT expressed concern at the way supermarkets were selling nearly 3,000 popular products at below cost price and were using local price cuts and promotions to put pressure on smaller competitors. It was also concerned about the way the supermarkets were using their increasing buying power in deals with suppliers, and about their acquisition of hundreds of development sites, many of which may have been acquired solely to prevent a rival opening a store. The OFT also said that there was evidence that the large supermarket chains had erected barriers to keep out new players, and that their move into the convenience-stores sector could distort competition and disadvantage consumers.
In October 2007, the watchdog delivered its preliminary findings, in which it cleared the supermarkets of driving their smaller grocery rivals out of business but stated that the large supermarket groups were not competing effectively in some parts of the country. It also uncovered evidence that the large grocers were making unfair demands on suppliers. However, there was nothing in the report to threaten Tesco's dominance in the market, and the grocer's share prices climbed to a near all-time high. Groups representing suppliers and smaller traders expressed disappointment at the Commission's findings. Among them were the Forum of Private Business, the Federation of Small Business and the New Economics Foundation. The report also proposed a shake-up of the planning system, replacing the so-called `needs test' — which does not allow supermarket groups to build new stores unless they can prove that a new outlet is required — with a `fascia test', favouring retailers not currently operating in an area. These are the provisional findings of the Commission; the supermarkets and other interested parties will have a chance to respond before its final report is published in May 2008. There is little to indicate that any measures will be taken that will threaten the invincibility of Tesco.
Executive Summary
1. Introduction
OVERVIEW
DEFINITION
Background
The Effect on Suppliers and Other Traders
Possible Threats
Competition Enquiry
The `Fascia Test'
Internet Shopping
Consumers Switching Loyalties
Potential for Growth
Change in Planning Restrictions
Home Shopping
Services
Sunday Trading
2. Strategic Overview
INTRODUCTION
MARKET DYNAMICS AND SEGMENTATION
Development, Characteristics and Trends
The Effect of Supermarkets' Success on Other Manufacturers and Retailers
DISTRIBUTION
COMPETITIVE STRUCTURE
ADVERTISING
THE CONSUMER
MARKET FORECASTS
3. Products and Services
PRODUCTS
Books and Stationery
Clothing
Cosmetics, Fragrances and Toiletries
Fuel
Home Entertainment
Hosiery and Lingerie
Household Cleaning Products
Kitchenware and Electrical Appliances
Linens
Pharmaceuticals, Vitamins and Supplements
Plants, Flowers and Garden Equipment
Telephones
Toys and Novelties
Other Miscellaneous Products
SERVICES
Air Miles
Catering
Coffee Shops/Restaurants
Take-Aways
DVD Hire
Estate Agency
Financial Services
ASDA Financial Services Ltd
Co-operative Financial Services
Sainsbury's Bank PLC
Tesco Personal Finance Ltd
Insurance
ASDA Insurance
Sainsbury's Insurance
Tesco Insurance
Healthcare
Parent-and-Baby Facilities and Crèches
Photoshops
Recycling Facilities
Telephone and Internet Services
Travel Services
Utilities
Other Miscellaneous Services
4. Market Size
TOTAL RETAIL SALES VALUES
Table 1: Consumer Expenditure on Selected Products by Value at Current Prices (£m), 2005 and 2006
Figure 1: Consumer Expenditure on Selected Products by Value at Current Prices (£m), 2005 and 2006
NON-FOOD SALES VALUE ATTRIBUTABLE TO GROCERY MULTIPLES
5. Current Issues
CONSUMER ISSUES
Lifestyles
Number of Households
Purchasing Profiles
By Social Grade of Main Shopper
Table 2: Purchasing Profile by Social Grade of Main Shopper (index: all households = 100), 2004
Home Shopping
Shopping Patterns by Day of the Week
Average Weekly Expenditure
Table 3: Average Weekly Household Expenditure on Selected Non-Food Products at Large Supermarket Chains and Other Outlets (£ per week), 2005/2006
Consumer Associations
The National Consumer Council
The Consumers' Association
SUPPLIER ISSUES
Home Delivery
Grey-Market Imports
Opening Hours
Resale Price Maintenance
National Minimum Wage
Loyalty Schemes
Investigation into Profiteering
Landbanks
6. An International Perspective
BACKGROUND
SUPERMARKET CHAINS
Aldi, Lidl and Netto
Tengelmann, Rewe and Edeka
E Leclerc and Carrefour
Intermarché
Tesco
Wal-Mart Stores Inc
RECENT DEVELOPMENTS
7. PEST Analysis
POLITICAL FACTORS
World Economic Forum
The National Minimum Wage
A New Business Tax
ECONOMIC FACTORS
The Retail Market
SOCIAL FACTORS
Lifestyles
Bankruptcies
Fair Trade
Community Initiatives and Charity Support
TECHNOLOGICAL FACTORS
Self-Scanning
Electronic Point-of-Sale Systems
Chip and PIN Technology
Payment by Mobile Telephone
8. Consumer Dynamics
OVERVIEW
Table 4: Purchase of Non-Food and Services from Supermarkets (% of respondents), March 2006 and October 2007
PURCHASING OF CLOTHING AND USAGE OF CASHBACK SERVICES
Clothing
Cashback
Table 5: Purchasing of Clothing and Usage of Cashback Services (% respondents), October 2007
PURCHASING OF ELECTRICAL GOODS AND PETROL
Electrical Goods
Petrol
Table 6: Purchasing of Electrical Goods and Petrol (% of respondents), October 2007
USAGE OF SUPERMARKET PHARMACIES FOR MEDICAL ADVICE OR PRESCRIPTIONS
Usage of Supermarket Pharmacies for Medical Advice
Usage of In-Store Supermarket Pharmacies for Dispensing Prescriptions
Table 7: Usage of Supermarket Pharmacies for Medical Advice or Prescriptions (% of respondents), October 2007
PURCHASING OF NON-FOOD ITEMS ONLINE, AND OPINION THAT SUPERMARKETS SHOULD CONCENTRATE ON SELLING FOOD
Purchasing of Non-Food Items Online From Supermarkets
Opinion That Supermarkets Should Concentrate on Selling Food
Table 8: Purchasing of Non-Food Items Online, and Opinion That Supermarkets Should Concentrate on Their Core Activity of Selling Food (% of respondents), October 2007
9. Company Profiles
PRINCIPAL COMPETITORS
Tesco PLC
Profitability
Table 9: Tesco PLC — Turnover and Pre-Tax Profit (£000 and %), Years Ending 26th February 2005, 25th February 2006 and 24th February 2007
ASDA Group Ltd
Profitability
Table 10: ASDA Group Ltd — Turnover and Pre-Tax Profit (£000 and %), Years Ending 31st December 2004-2006
J Sainsbury PLC
Profitability
Table 11: J Sainsbury PLC — Turnover and Pre-Tax Profit (£000 and %), Years Ending 26th March 2005, 25th March 2006 and 24th March 2007
Wm Morrison Supermarkets PLC
Profitability
Table 12: Wm Morrison Supermarkets PLC — Turnover and Pre-Tax Profit (£000 and %), Years Ending 30th January 2005 and 29th January 2006, and 53 Weeks Ending 4th February 2007
Somerfield Ltd
Profitability
Table 13: Somerfield Ltd — Turnover and Pre-Tax Profit (£000 and %), Year Ending 24th April 2004, 53 Weeks Ending 30th April 2005 and Year Ending 29th April 2006
The Co-operative Group
Profitability
OWN-LABEL VALUE SHARES
COMPANY ADVERTISING
Advertising Expenditure on Products
Table 14: Main Media Advertising Expenditure by Supermarkets on Selected Non-Food Ranges (£000), Year Ending September 2007
Advertising Expenditure by Supermarket Chain
Advertising Expenditure by Media Means
Recent Promotions
Tesco Direct
George at ASDA
Morrisons
Somerfield
Jamie Oliver and Sainsbury's
Direct Marketing In-Store
Advertising Standards
Complaints to the Advertising Standards Authority
Advertising to Children
Types of Promotions Favoured by Consumers
DISTRIBUTION
Supermarkets' Estimated Share of Selected Non-Food Items
Table 15: Supermarkets' Share of the Distribution of Selected Non-Food Items by Value (%), 2004/2005 and 2005/2006
Figure 2: Supermarkets' Share of the Distribution of Selected Non-Food Items by Value (%), 2005/2006
10. The Future
EXPANSION
TURNOVER
Table 16: Value of Retail Sales at Current Prices, Not Seasonally Adjusted (index numbers of sales per week where 2000=100), 2000 and 2003-2006
Figure 3: Value of Retail Sales at Current Prices, Not Seasonally Adjusted (index numbers of sales per week where 2000=100), 2000 and 2003-2006
DEMOGRAPHICS AND ECONOMIC CLIMATE
GROWTH AREAS
11. Further Sources
Associations
Companies
Trade Journals
Marketing/National Press
General Sources
Government Publications
European/International Sources
Other Sources
Bisnode Sources
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