The race for grocery space looks likely to be played out in the convenience sector in the next few years.
At the start of the month Morrisons confirmed it will pilot three convenience shops under the M Local fascia in Yorkshire, Liverpool and Manchester, and Waitrose - which is mulling a roll-out of its Little Waitrose fascia - is going gung-ho to find smaller shops to help it get into towns and cities that can’t sustain a larger store.
Just last week Tesco’s acquisition of Mills Group was cleared by the Office of Fair Trading, giving the grocer a further 76 convenience shops to add to its One Stop portfolio. And Sainsbury’s said last October that its convenience operation had become a £1bn business.
The heightened competition will weigh heavily on Co-operative Group, which reports its full-year results next Wednesday. It was propelled into fifth position in grocery when it bought Somerfield in 2008 and became the largest convenience store chain, although Tesco is just a nudge behind in terms of store count.
Buying Somerfield was the right thing to do to stop the old-fashioned mutual being crushed by the big grocers. But any integration comes with its own problems and last year it suffered sales falls at converted stores.
Over Christmas, the Co-op also took a hit. Like-for-likes at its food division fell 3.2% in the fourth quarter. It blamed the snow, plus its planned acceleration of conversions. But shouldn’t Co-op have done well in the snow as shoppers bought locally at convenience stores?
We’re now entering spring, Co-op’s target date for the completion of the Somerfield integration, which will be a relief for boss Peter Marks. We’ll find out how it has all progressed next week but with, as is hoped, any integration problems behind him, Marks will need to step things up a gear to really compete with the big boys.
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