More questions raised over Sainsbury's convenience strategy

- Last updated on GMT

Related tags: Convenience store, Retailing, Sainsbury

Britain's third largest food retail group Sainsbury looks set to
increase its presence in the convenience store sector even further
in the next few weeks with a bid for the TM Group.

Just last week Sainsbury announced​ the acquisition of the Bells chain of 54 upmarket convenience outlets in the north east of England, and a report in the Sunday Times​ newspaper claims that the group is negotiating the £230 million takeover of the owner of the Martins and Forbuoys fascia.

Sainsbury has as yet made no comment about the rumours, but a bid for TM would certainly be consistent with the company's stated aim of moving increasingly into the High Street convenience store market.

TM has been on the market since November 2002 when owners Montagu Private Equity and Electra Partners decided to realise their investment. But with the high level of interest in the convenience store sector in recent months - Tesco and Co-op in particular have moved rapidly into this market - it is perhaps surprising that the group has not attracted more interest from major groups.

One possible reason is that a large numbers of its stores are newsagents rather than grocery outlets and as such might not fit as well with the existing portfolios of the multiple grocers. When Tesco acquired T&S last year, it decided not to keep the Dillons newsagent chain and the Supercigs tobacco retail units which the convenience store operator owned, preferring to focus entirely on food.

So is the alleged offer for TM another example of Sainsbury expanding at any cost? The group has struggled to reap the benefits of its restructuring programme, despite a major overhaul of supply chain systems, a new look for almost all of its stores and the launch of an extensive non-food range, but despite this apparent inability to get even the basics working correctly, it has persisted in moving into the convenience store sector as well, almost as an afterthought or simply because Tesco has done so.

Granted, Sainsbury has been running its Local convenience store unit for several years, but with just 60 or so stores it has played a relatively minor role in the Sainsbury portfolio until now. Convenience retailing is clearly where everyone wants to be - and where the growth is likely to be, as long as the regulators maintain their stance that it is a separate market from that of the mainstream supermarket trade - but there is little sign of any coherent strategy for the convenience sector from Sainsbury.

The Bells chain is a relatively good fit for Sainsbury, which also prides itself on its upmarket image, although why the unit will continue to run as a separate business and not be fully integrated into the group (thus benefiting from better economies of scale) remains a mystery. And the bid for TM makes even less sense - even if Sainsbury decides to keep all the newsagents outlets and convert them into convenience stores, the sheer cost of such a move would undoubtedly call into question the alleged £230 million price tag.

Sir Peter Davis, Sainsbury's chairman, has said that 2004 will be a year of real change for Sainsbury, with the restructuring programme finally coming to an end, allowing the group to focus on the day-to-day business of selling groceries. But until it can show some evidence that it can do just that, and do it well - and that its expansion strategy is not based on what its rivals do first - there is little chance of a return to the glory days.

Related topics: Market Trends

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