Retail analyst Dave McCarthy says that the big four UK grocers are planning to add 5 million square feet of extra selling space each year in the next four, increasing total floor space by more than 20 per cent by the end of 2014.
Are shoppers going to be spending 20 per cent more? Not likely. So what will the impact be? “It is inevitable that the big four will be going head to head more than at any time in history, with consequences for sales, profits and returns,” says Mr McCarthy.
At first look, independent retailers may think this is terrible news. But that assumes that the 75 per cent market share of the big four can grow. The other side of the coin is that the big four have already reached the maximum share that they can reach and each new square foot of selling space will impact on their own profitability.
Two stories from local retailers this week bear consideration. Navin Bupthani assured me that a large Tesco Express near his shop was missing its numbers and feeling the pressure. The cause? Competition from a Waitrose convenience store across the road.
And Kay Patel tells me that a Tesco Express near his shop took just £5,000 in its first week – less than a tenth of its target.
“The long term effects of lower returns and weaker like-for-like sales are more severe and harder to reverse,” says Mr McCarthy. He suggests the big four would be better off investing in a price war.
If you operate a well-run shop with loyal local customers and are prepared to invest in staying successful, then you don’t need to worry too much about the multiples fighting each other. It may even present you with more opportunities to grow your own profitability.
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