It’s been a tumultuous week for three of the four big grocers. Tesco opened the doors on its Fresh & Easy stores in the US, Delta Two’s bid for Sainsbury’s collapsed and Asda posted disappointing profits in its 2006 accounts at Companies House.
But, behind all the ballyhoo, little has been mentioned about the challenges facing small and independent retailers – particularly in light of the Competition Commission’s provisional findings released last week.
It’s fair to say that small and independent retailers got a bum deal, although there is a still a glimmer of hope that Commission chairman Peter Freeman could spring a few surprises in his final report expected in March.
The provisional report rebuffed claims made by the Association of Convenience Stores (ACS) on numerous fronts, including the harmful impact of supermarket vouchers, below-cost selling and the waterbed effect of suppliers charging the little guys more to compensate for discounts given to the big guys. In short, the message from Freeman was that the UK grocery sector is competitive, delivers a good deal for consumers and that independents with a compelling retail offer can thrive.
Above all, it was the Commission’s suggestion of relaxing planning restrictions for out-of-town shopping centres and the potential introduction of a fascia test to introduce greater choice that could have the biggest impact on independents for several reasons.
First, an increase in the number of big supermarkets in out-of-town locations is more likely to lead punters to get in their car to do big weekly shops – bypassing their local stores. Second, a fascia test may stifle Tesco’s expansion, but it could fuel the expansion of the other big supermarkets, although there may be limited opportunities for symbol groups, such as Nisa Today’s, Spar and Musgrave, which have all put in strong performances this year.
Certainly, the ACS seemed to toughen its response to the provisional findings over the weekend, when it threatened to lodge an appeal if the Competition Commission’s final report does give it any juicy morsels in the final report next year.
If things do not change, it is difficult to envisage anything beyond further consolidation in the grocery market. The ACS claimed that the Commission’s use of the Experian Goad data focused only on town centres, which misses out key locations such as neighbourhood estates and villages, resulting in the data painting an inaccurate guide to the actual number of UK independents that it claims is falling.
But, whichever measurement is used, the provisional findings could make it easier for the big fish to snap up the little minnows, making them offers they can’t refuse. In fact, Sainsbury's purchase of independent Shaw’s in April 2005 was the last such acquisition. The death of independent and small retailers has been greatly exaggerated, but the likes of Nisa Today’s, Musgrave and Spar are going to have to fight harder than ever before to stay in the game – particularly if a benign conclusion to the inquiry next year is the last for a long time to come.