One-stop shop threat to high street retail
traditionally covered by food retailers but which are becoming an
increasing part of the weekly food shop for many British consumers.
But as the major multiples expand their range of services, both
in-store and online, traditional high street operators from banks
to chemists are losing out.
Supermarket operators in the UK are increasingly expanding the range of goods and services they offer to their customers, at the same time encroaching on market sectors traditionally served by other, smaller retailers.
A new report, Supermarket Services Market Assessment 2003 from British market analysts Research and Markets highlights the growing threat to convenience store operators, pharmacists and even restaurants from the expansion of the leading supermarket chains.
Supermarkets are increasingly becoming a 'one-stop shop' for consumers, offering not only an increasingly broad selection of food products but also more non-food items and a large number of additional services from photo development to dry cleaning via key cutting and insurance broking.
But the stores themselves are not the only threat to traditional high street retailers. The major supermarket chains have been engaged in expanding their online services, which include home delivery and financial products, meaning that consumers need not even leave the comfort of their own home to stock up on their weekly groceries.
As if this were not bad enough, the major store operators are now taking on their smaller rivals on their own territory. Since the Competition Commission's report on the supermarket sector in 2000, it has become increasingly difficult for multiple retailers to expand their sites and gain permission for new out-of-town stores. Consequently, the major supermarket chains have been looking at takeovers of other chains as a valuable means of expansion. This coincides with the return of supermarkets to the neighbourhood and the expansion of their convenience-store brands, such as Tesco Express and Sainsbury's Local.
But this expansion in the convenience sector and the broadening of in-store services has once again attracted the attention of the Department of Trade and Industry, in particular in relation to in-store pharmacies. Although these are popular with consumers, the government is worried about the threat to independent chemists and other local retailers. The supermarkets continue to be adamant that they are responding purely to the consumer and not the other way round.
Research by BMRB Access, commissioned by Research and Markets specifically for the report, highlights some interesting consumer issues. Over two-thirds of those surveyed wished to see supermarkets expand their services, a marked increase since the 2001 edition of the same report, which showed that only around a quarter of respondents sought a wider range of services.
However, it seems that many of the services on offer appeal largely to the affluent AB social grade. This is particularly the case with online services, where it appears that less affluent households are not as frequently connected to the Internet. Although use of the Internet by more mature adults - so-called 'silver surfers' - has grown substantially, the young continue to dominate services provided in this arena, a trend supported by the survey's findings that the young are generally more open to the introduction of further supermarket services.
Financial products sold over the Internet by supermarkets still require greater market penetration, the survey showed. However, consumers are generally trusting of supermarket brands, so that this trust merely needs extending to financial services. With analysts predicting dramatic reductions in the cost of supermarket financial products in comparison with high street banks, this will no doubt happen and could well result in a knock-on effect. Marketing these services is easy for the supermarket operators, with a captive audience in their stores and on their websites, and linking banking services to loyalty card schemes is an additional means of attracting new custom.
The Expenditure and Food Survey 2001/2002, published by National Statistics, shows that UK households are spending an average of £380.30 per week on services. Of this figure, £52.30 is being spent on leisure services and £5.20 on personal services. Supermarkets recognise the importance of tapping into these markets and attracting consumers at the same time that they are doing their grocery shopping.
Furthermore, the figures for expenditure on meals out and takeaways continue to rise each year as people increasingly have less time and, arguably, more cash. Supermarkets continue their efforts to refurbish their in-store cafés, making them more accommodating and offering a more extensive menu, in order to take more of the £10.90 per week being spent on restaurants and cafés, according to the Expenditure and Food Survey.
Holiday and travel services dominate leisure expenditure so it would not be surprising to see supermarkets expand their online capabilities into this arena. At present, the extent of their participation is largely limited to schemes that exchange Air Miles for loyalty card points.
With nearly 80 per cent of the UK population owning a mobile telephone, it is not surprising that both Tesco and Sainsbury have entered this sector. British households spend an average of £9.30 per week on telecommunications, a sure-fire signal to supermarkets that this could well be a lucrative market to move into. Tesco plans to launch a fixed line telephone service, which will undercut BT, and the company's highly developed IT systems should be well-equipped to make a success of it, as signs of their success with online grocery shopping would seem to bear out.
For further details of the report, visit Research and Markets' website
