When it comes to store expansion, some grocers are overfilling their baskets, says Mark Price.

When it comes to store expansion, some grocers are overfilling their baskets, says Mark Price.

“There’s something rotten in the state of Denmark …” While I don’t believe there’s anything rotten about supermarket retailing or that the resolution will be nearly so dramatic as the body-count at the conclusion of Hamlet, there is something concerning going on in the industry.

It’s the space race. Whether it’s new out-of-town superstores or extending existing large shops into super-sized monsters, the obsession with ever-bigger shops is creating a serious imbalance between the amount of new food retail space being planned and the predicted growth in consumer spending.

Just casting back over the last two years (2009 to 2011), the space dedicated to food and grocery in the UK grew by over 13%, or a whopping 10.6 million sq ft. The increase in sales value over the same period? Just 6.8%. But it gets worse. Volume growth retail expenditure on food and grocery was 1.2%. 

I’m afraid the picture doesn’t improve if we look ahead to forecasts for 2011 to 2015.  Space is predicted to grow by 19 million sq ft or just over 21%. Sales value is tipped to go up by 14.3% and – no surprise – volume growth much lower, allowing for food price inflation, at a paltry 2.3%.

It doesn’t stack up. Some element in this lopsided equation has to change.  Investors accept lower returns? Prices go up? Costs tightened? More realistically perhaps, a slowing and review of the space race.

Particularly in the current economic climate with so many young people out of work, all of us in this industry take genuine pleasure in creating new, good jobs. Opening new stores enables us to do this on an impressive scale. But, given the huge gap between the outlook for expansion and uplift in sales volumes, there has to be a question mark over sustainability.

Some players have headroom to grow because of being under-represented nationally or having a differentiated offer. Or both.

But even they need to consider carefully changes in the way customers are choosing to shop that suggest there will be even more focus on smaller and convenience formats. 

People will be doing more of their shopping online – predicted to account for 5.8 % of food and grocery spend by 2015 – using click-and- collect for bulky items and convenience stores for top-up shopping.

And if convenience plays an increasingly important role in how customers want to shop then, to coin a phrase, it’s location, location, location. We know that the choice of site for a convenience branch is absolutely critical so that commuters can pick up their lunchtime meal on the way into the office or their food for this evening at the end of the working day. A couple of doors down the street is the difference between success and failure.

Perhaps, then, the race for space should slow down and refocus on what is commercially sustainable and how customers want to shop with us.

  • Mark Price is managing director of Waitrose