Tesco to top convenience store league in UK

Tesco is poised to overtake all its smaller rivals in the UK to become the largest operator of convenience stores this year, research showed today.

The supermarket giant is set to leapfrog the Co-op, Spar and the owner of the Budgens and Londis chains into top spot in neighbourhood retailing, according to Verdict Research.

Such a move would confirm the growing clout of big supermarket chains in a sector that has traditionally been dominated by family-owned shops. Tesco already accounts for 29.1% of all grocery sales in the UK.

The acquisition by Tesco of Adminstore, which runs the Europa, Harts and Cullens grocery outlets in the London area, last year sparked an outcry among rival neighbourhood store operators.

They are worried that supermarkets will use their size to push prices below levels where they can make sufficient profits.

Encroachment by the major supermarkets into the convenience store sector was recently cited by Iceland owner Big Food Group among the reasons why it welcomed a takeover.

Tesco accounted for 5% of neighbourhood retailing last year – behind the Co-op at 5.5%, Spar at 5.4% and Budgens owner Musgrave at 5.3%, according to the Verdict report.

But Gavin Rothwell, senior retail analyst at Verdict, said: “Given Tesco’s recent track of growth, it is hard to envisage it not closing this gap in 2005.”

Tesco saw its share of the convenience store market rise by 1% in 2004, but he said acquisitions only formed one of the reasons for its success. It enjoyed potent like-for-like growth, further developed its Express format and overhauled a number of stores.

The acquisition strategy of Tesco and rival chains such as Sainsbury’s, which bought three convenience store operators in 2004, had “raised the bar” for smaller retailers who were now offering more fresh and chilled food ranges, he said.

“The long neglected neighbourhood is emerging as one of retail’s most exciting battlegrounds,” Mr Rothwell added.

“Retailing competencies are significantly improving and prices are falling.”

He noted the recent takeover approach made by Baugur for supermarket chain Somerfield and speculation that it might merge it with the Big Food Group.

“Were Baugur to be successful in its bid for Somerfield, the combined operations of the Big Food Group and Somerfield would catapult it to the number one spot,” he said.

“Yet in spite of the scale attractions of the bid, both operators are in delicate positions, and as such we are far from convinced that the combination of two under-performing retailers will create anything but a larger struggling retailer.”