Somerfield joins the convenience race

Related tags Kwik save Morrisons Asda Somerfield

Somerfield, itself a takeover target last year, is the latest UK
supermarket retailer to move into the convenience store sector, a
movement led by larger rivals Tesco and Sainsbury. Evidence that
the UK's biggest High Street retailer is determined to move more
into the convenience sector - and put its troubled acquisition of
Kwik Save behind it, writes Chris Jones.

Somerfield did not say how much it had paid for Scottish group Aberness, commenting simply that the assets acquired had a value of £4.8 million. Aberness currently operates operates 36 convenience stores, has franchise arrangements with operators of five further stores, and distributes to a further 130 outlets operating under the Mace and Morning Noon and Night banners.

This franchise agreement explains Somerfield's particular interest in Aberness. Somerfield launched its own franchise operation at the UK Convenience Retailing Show last week, and Aberness' business fits well with this strategy. Somerfield said it planned to convert two trial stores to the Essentials brand within six weeks.

Somerfield's move into this sector is timely, with increasing interest from major players meaning opportunities will be harder to find in the future. Expansion by the big four (Tesco, Asda, Sainsbury and now Morrisons) is limited by the UK competition authorities, and a sideways move into the convenience store sector is seen as a means of driving growth while avoiding competition concerns.

Tesco has been the driving force behind this move, buying both the T&S and Adminstore businesses over the last 18 months and boosting its portfolio by nearly 850 stores in the process. Sainsbury followed suit with the acquisition of Bells last month, while Morrisons will convert some of the smaller Safeway stores acquired earlier this month to a new convenience fascia called Safeway Compact.

So is Somerfield simply following the crowd? "Clearly, in the light of recent deals, there is more than a hint of bandwagon-jumping about the Aberness acquisition, but the move does conform to Somerfield's strategy of becoming more of a neighbourhood grocery business,"​ retail analyst Bryan Roberts of M+M Planet Retail​ told​.

"The initiative signals that, after years of sluggish performance following the merger with Kwik Save, Somerfield's recovery is firmly on track and the gloves are coming off again."

Somerfield's acquisition of Kwik Save in 1998 is a prime example of how growth for growth's sake can seriously backfire - underlining the importance of a unified expansion strategy. With few synergies between the discount and traditional supermarket formats it manages, Somerfield found it hard to benefit from the Kwik Save takeover, all the more so as the UK retail market has become increasingly sophisticated and more price driven over the last few years, making the 'stack it high, sell it cheap' discount format even less attractive, despite the lower prices.

A major rethink of Kwik Save's store layout, including the addition of fresh produce ranges for the first time, has at least helped get sales back on track (although a complete turnaround is likely to take many years), and this, coupled with a streamlining of the group's store portfolio to focus on smaller outlets, has helped Somerfield see a major upturn in its fortunes.

But if the chain wants to consolidate its position in the high-margin convenience sector, it will have to move quickly. "It is also obvious that any remaining independent regional c-store chain, such as Jacksons or Morning, Noon and Night, will be awaiting a knock on the door from a chequebook-wielding major grocer at any moment,"​ said Roberts.

"With Somerfield joining Tesco and Sainsbury's in the c-store shopping spree, the targets are becoming more scarce and it is likely that the odd bidding war or two is on the way."

Hence Somerfield's interest in Londis - the UK's biggest symbol group - which is currently assessing offers from a number of companies including Musgrave, owner of Budgens, and the Big Food Group, which runs the Iceland and Booker businesses.

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