Convenience sector is the long-term favourite

The 150 additional convenience stores equate to a whopping 50 per cent increase on the 100 shops it was scheduled to open in its financial year to 2008. Given that Tesco has about 810 Tesco Express convenience stores already, this would bring its Express estate to just shy of 1,000, although Tesco declined to comment ahead of its preliminary results on Tuesday.

While the expansion programme is impressive in its scale, Tesco’s 9.6 per cent share of the convenience market is only marginally ahead of Spar’s 9.2 per cent and the Co-operative Group’s 7.9 per cent, according to Verdict’s estimated 2007 figures.

A much bigger strategic issue than Tesco’s market share is the fact that the convenience sector is growing at a quicker rate than the grocery sector as a whole. And this is just one reason – in addition to other factors, such as smaller sites being far cheaper and quicker to acquire, given planning restraints – why the convenience sector is likely to outstrip the overall sector for a long time to come.

Demographic factors will play a major role in its growth. The trend of more people living by themselves, in flats and having precious little time to head to the supermarket each week for a big shop is only going to grow. The fact that life expectancy will only lengthen means that most of the elderly will welcome more convenience stores in their area, although some will always moan about the local butcher or grocer being put out of business. With the number of immigrants coming to the UK set to explode in the next 50 years and their birth rates set to increase, a growing younger population will also want a convenient destination to shop.

In the long term, the growth potential of the convenience sector could have serious implications for grocers – notably Asda, Morrisons and Waitrose – which are not yet in that market. Asda chief executive Andy Bond always reminds hacks that a 1 per cent increase in like-for-like sales at Asda’s stores is equivalent to the sales generated by 500 new convenience stores.

But the fact remains that grocers that have not yet launched a convenience operation will face an uphill struggle to find a sufficient number of sites to expand organically.

Of all the big grocers, Waitrose is arguably the one that has missed out on the biggest opportunity. Managing director Mark Price is thought to be considering launching a convenience format, but it was surely a missed opportunity by the previous Waitrose management not to spot the vacuum that Marks & Spencer has filled with its upmarket Simply Food offer.

More immediately, the planned growth spurt of Tesco Express only further illustrates why Co-op should acquire Somerfield. Speculation is rife that Co-op could soon launch an improved offer for the 900-store local grocery chain, but a source close to Somerfield denied it had entered into exclusive talks.

Co-op boss Peter Marks may be reluctant to meet Somerfield’s price of about£2 billion, but history is likely to prove that the acquisition would make sense.

Whether it is down to demographics, planning restrictions or Tesco’s growth, grocers will need to be in the growing convenience sector at some point in future. Sir Terry Leahy, Peter Marks, Sir Stuart Rose and Justin King are fully aware of this necessity – it’s about time that other grocers got with the programme.