UK Neighbourhood Retailing

Table of Contents

EXECUTIVE SUMMARY

• Key findings

KEY ISSUES

• Exploiting opportunities in outperforming location
  • Changing shopper demographic
  • Demand for top-up shopping
  • Desire for convenience

• Adapting to changing dynamics of location
  • Market consolidating
  • Competition intensifying
  • Consolidation to impact future growth opportunities
  • Flexible formats
  • Flexible propositions
  • Symbol groups boost loyalty
  • Diversify & Differentiate

• Threats Remain
  • CTNs and off-licences lose out to bigger players
  • Onerous legislation will hit sales and profits
  • Dwindling need for CTNs & Off-licences
  • Only highly differentiated food specialists will survive

NEIGHBOURHOOD MARKET

• Summary
  • Supermarkets and symbol groups pressurise unaffiliated independents

• Components of neighbourhood retailing
• Neighbourhood sales channels
  • Majority of neighbourhood sales through convenience stores

• Space
  • Multiples and symbol groups slow decline in space

• Neighbourhood SWOT analysis

NEIGHBOURHOOD V OTHER LOCATIONS

• Sales
  • Sales growth driven by multiples and symbol groups

• Space
  • Opportunistic retailers help slow declines in neighbourhood space

• Sales densities
  • Boosted by product mix and expansion of multiples

• Stores
  • Vacant stores are snapped up quickly

C-STORES AND SMALL GROCERS

• Summary
  • Despite continued consolidation, market remains fragmented

• SWOT analysis
• Key messages
  • Unafilliated independents continue to be recruited by symbol groups
  • Smaller Grocers - The Co-operative stamps authority and supermarkets exert pressure
  • Convenience retailing will benefit from changing shopping habits
  • Constrained household budgets make value key
  • Growing importance of fresh food and food-to-go
  • C-stores expand on to forecourts
  • Waitrose sensibly commits to convenince store expansion

C-STORES: OTHER SYMBOL GROUPS

• Introduction
• Summary
  • How Costcutter / Nisa-Today' s relationship evolves will significantly impact on Nisa
  • Prevalence of wholesalers with a symbol group offer could decline sharply
  • Fresh produce and own brands become vital aspects of propositions

• Key players
  • Best-one (Bestway)
  • Key Store (JW Filshill)
  • Lifestyle (Landmark Group)
  • Mace (Palmer & Harvey McLane)
  • Nisa-Today' s

C-STORES ON FORECOURTS

• Summary
  • Still hold opportunities for convenience and food service brands

• Key messages
  • After decline petrol station numbers stabilise
  • Modern forecourt convenience stores continue to break old stereotypes
  • Motorists shop spend was resilient despite high fuel prices in 2008
  • Convenience store and oil company partnerships still being pursued
  • Service station food-to-go remains a growth area
  • Franchise arrangements increasingly prevalent
  • BP, Shell and Total continue to prospect for new dealers
  • BP franchise model successful template for others

• SWOT analysis
  • Store numbers

• Key players
  • BP has strongest shop brand on UK forecourts
  • Shell develops private label food-to-go range
  • Esso partnership with Tesco leaves it well placed
  • Total trio of formats
  • Almost all Texaco sites are dealer-owned
  • Smaller fuel retailers partner with branded stores

TRADITIONAL FOOD SPECIALISTS

• Summary
  • Niche players set to capitalise in struggling market

• SWOT analysis
• Key messages
  • Food specialists continue to struggle
  • Niche operators that diversify will prosper
  • Future for the sector looks challenging

• Neighbourhood food specialists in wider context
  • Multiples and symbol groups encroach on specialists territory

• Background of total sales, space and stores
  • Food specialists sales continue to be pressurised by multiples
  • Space and stores continue to contract as competition intensifies

TRADITIONAL OFF-LICENCES

• Summary
  • Off-licences face uncertain future

• SWOT analysis
• Key messages
  • Specialist off-licences under pressure from all sides
  • Proposed minimum unit pricing will be of no benefit to off-licences
  • Specialists need to utilise their strengths to advantage
  • Problem areas: shallow range, lack of knowledge and prices not low enough

• First Quench (Threshers, Wine Rack, Haddows and The Local)
  • Struggles for survival

• Other key players
  • Bargain Booze
  • Laithwaites
  • Majestic Wine
  • Oddbins
  • Wine Cellar

NEIGHBOURHOOD PHARMACIES

• Summary
  • Pharmaceutical market defies downturn

• SWOT analysis
• Key Messages
  • Local chemists seek to capitalise
  • Deregulation allows growth for supermarkets and independents alike
  • Smaller independents struggle against supermarkets and abolishment of PPA
  • Swine Flu injects boost
  • Pharmacies compete with GPs

• Alliance Boots
  • Key Messages

• Lloydspharmacy
  • Key Messages

TRADITIONAL CTN OPERATORS

• Summary
  • CTNs face increasingly uncertain future

• SWOT analysis
• Key messages
  • Increasingly competitive marketplace
  • Diversifying offer essential for survival
  • Provide service to encourage loyalty and spend
  • CTNs need to adapt store environments following tobacco legislation
  • Consolidation in newspaper distribution will see more CTNs close

• Martin McColl

FORECAST

• Retail spending by location in 2008 and 2013
  • Multichannel retailers will prosper as online spending grows

• Neighbourhood retailing to 2013
  • Sales growth to rise as multiples and symbol groups take over
  • Convenience stores will prosper in increasingly competitive market
  • Declines in space and stores will slow as market consolidates

COMPANY DATA ANALYSIS

• Summary
• Winners & losers
  • Expansion of The Co-op and Tesco makes them big winners

• Neighbourhood retailers sales
  • Growth driven by expansion of The Co-op and multiples

• Market shares
  • The Co-operative maintains dominance through acquisition

• C-store market shares
  • The Co-operative overtakes Tesco at top of convenience market

• Key operating statistics
  • The Co-operative continues to lead the way

THE CO-OPERATIVE GROUP

• Asserts its dominance
• Recent key events
  • Acquisition of Somerfield
  • The Co-op now has most stores in UK
  • The Acquisition of Somerfield - what it means for The Co-operative

• Financials
  • Trading performance boosted by Somerfield acquistion

• Space
  • Expansion set to slow after acquisition provides a boost

• Market shares
  • The Co-operative experiences big gains in share

• Outlook - Bright
  • Record refurbishment
  • Price harmonisation essential
  • Competition intensifies
  • Ethical reputation is valued by customers
  • Common branding

COSTCUTTER

• Continues to improve proposition
  • Reduces joining costs for retailers
  • Launches consumer loyalty scheme
  • Biggest TV campaign
  • Nisa-Today' s rejects Bibby Line bid

• Financials
  • (Untitled sub-section)

• Stores
• Market shares
  • (Untitled sub-section)

MUSGRAVE

• Positions itself for future growth
• Recent key events
  • (Untitled sub-section)

• Financials
  • Investment depresses operating profits

• Space
  • Musgrave changes format mix

• Market shares
  • Strong sales growth leads to share uplift

• Outlook - Musgrave should reap rewards of investment
  • Resilient performance
  • Investing in itself is a sensible strategy
  • The group is also right to sacrifice profits
  • Improvements to the supply chain are very important
  • Fresh food will drive growth
  • Single entity synergies
  • Challenge to keep Budgens strong performance going
  • Consistent store standards imperative

PREMIER (BOOKER)

• Continues to grow but challenges remain
• Recent key events
  • Management upholds solid trading performance
  • Launches new formats and broadens business
  • Strategy for growth
  • Three phases for completion by 2010

• Financials
  • Strategies for growth boost trading performance
  • Premier in the neighbourhood

• Space
  • Continues upwards trend as more stores join symbol

• Market shares
• Outlook - to grow market share further
  • Fresh products key
  • Staples like bread and milk will draw footfall
  • Standards must be kept high
  • Booker shoppers could become Premier members
  • More marketing wouldn' t go amiss

SAINSBURY

• To expand convenience offer aggressively
• Recent key events
  • Restructures c-store estateProduct development
  • Then expands once more
  • Experiments with five formats

• Financials
  • Neighbourhood

• Space
  • Expansion to slow after acquisitions boost

• Market shares
  • Sainsbury enjoys consistent growth over the last five years

• Outlook - significant gains
  • Making Sainsbury' s Great Again achieves aim
  • Focus on convenience
  • Realigns prices
  • Market conditions help expansion
  • Behind The Co-operative and Tesco

SPAR

• Performs strongly in increasinlgy competitive market
• Recent key events
  • Works hard to improve offer

• Financials
  • Currency fluctuations affect performance heavily

• Space
  • Greater competition reduces retailer membership

• Market shares
  • Negatively affected by exchange rate

• Outlook - aims to build on advantages
  • Currency fluctuations hide a strong performance
  • Store of the Future
  • Marketing improves brand awareness
  • Loyalty generation sensible
  • Needs aggressive recruitment
  • SPAR to thrive

TESCO

• Strong growth in neighbourhood yet challenges remain
• Recent key events
  • Continued expansion increasingly meets resistance

• Financials
  • Tesco continues to dominate

• Space
  • Pace of expansion remains high

• Market shares
  • Growth accelerates as space grows and offer evolves

• Outlook - opportunities remain challenging
  • Tesco continues to lead in UK retail
  • Convenience best option if Competition Commission findings become law
  • Former pubs could be snapped up
  • Heightened resistance in rural areas
  • Symbol groups key advantage over the supermarket

GLOSSARY

• Terminology
  • Abbreviations

TABLES

• Table: Neighbourhood sales breakdown 2007-2009e
• Table: Neighbourhood sales breakdown and its share of sectors 2009e
• Table: Neighbourhood sales, space, density & store nos 1998-2009e
• Table: Neighbourhood retailing SWOT analysis 2009
• Table: Retail location definitions 2009
• Table: Retail sales by location at current prices 1998-2009e
• Table: Retail selling space by location 1998-2009e
• Table: Sales densities by location at current prices 1998-2009e
• Table: Store numbers by location 1998-2009e
• Table: C-stores and small grocers SWOT analysis 2009
• Table: Petrol forecourts SWOT analysis 2009
• Table: Neighbourhood food specialists SWOT analysis 2009
• Table: Neighbourhood and total food specialists sales 2009e
• Table: Total food specialists sales 1998-2009e
• Table: Total food specialists sales value by activity 2004-2009e
• Table: Total food specialists store numbers and space 1998-2009e
• Table: Off-licences SWOT analysis 2009
• Table: First Quench key operating statistics 2004-2009e
• Table: Pharmacy operators SWOT analysis 2009
• Table: Alliance Pharmacy key operating statistics 2002-2008e
• Table: Alliance Boots UK key operating statistics 2005-2010e
• Table: Lloydspharmacy key operating statistics 2004-2009e
• Table: Lloydspharmacy - pharmacy profile 1999-2009e
• Table: CTN operators SWOT analysis 2009
• Table: Martin McColl key operating statistics 2004-2009e
• Table: Key neighbourhood retailers UK turnover record 2004-2009e
• Table: Share of neighbourhood market - leading players 2004-2009e
• Table: Leading n' hood retailers key operating statistics 2008/09e
• Table: The Co-operative Group company overview 2009
• Table: The Co-operative food retail key operating statistics 2004-2009
• Table: The Co-operative Group trading record 2000-2009
• Table: The Co-operative Group food retail trading record 2002-2009
• Table: The Co-operative Group store profile 1998-2009
• Table: Co-op Group store analysis (incl former Utd Co-op) January 09
• Table: Co-op Group store numbers incl Somerfield at March 2009
• Table: Costcutter company overview 2009
• Table: Costcutter key operating statistics 2004-2009
• Table: Costcutter estimated UK store profile 2003-2009
• Table: Musgrave company overview 2009
• Table: Musgrave retail key operating statistics 2004-2008
• Table: Musgrave store profile 2002-2008
• Table: Premier (Booker) company overview 2009
• Table: Booker Group key operating statistics 2004-2009
• Table: Booker Group trading record 2002-2009
• Table: Premier store profile 1998-2009e
• Table: Sainsbury company overview 2009
• Table: Sainsbury UK supermarkets key operating statistics 2003-2008e
• Table: Sainsbury group trading record 1998-2009
• Table: Sainsbury neighbourhood retail trading record 2003-2009e
• Table: Sainsbury store profile 1998-2009
• Table: Sainsbury store profile March 2009
• Table: SPAR company overview 2009
• Table: SPAR sales via HQ and UK store numbers 2004-2009e
• Table: SPAR sales via UK head office 2000-2009e
• Table: SPAR UK retail trading record 2005-2009e
• Table: SPAR store profile 1999-2009
• Table: Tesco company overview 2009
• Table: Tesco retail key operating statistics 2004-2009
• Table: Tesco group sales & UK trading record 1998-2009
• Table: Tesco neighbourhood retail trading record 2004-2009e
• Table: Tesco store profile 1998-2009
• Table: Tesco store profile February 2009

FIGURES

• Figure: Neighbourhood retailing 2009
• Figure: Neighbourhood opportunities 2009
• Figure: Achieving growth as dynamics of location change
• Figure: Number of unaffiliated independents 2005-2013e
• Figure: The threats in neighbourhood retailing
• Figure: Neighbourhood market - sales 2004-2009e
• Figure: Components of neighbourhood market - sales 2009
• Figure: Components of neighbourhood market - stores 2009
• Figure: Components of the market 2008 and 2009
• Figure: N' hood density, space & stores y-o-y change % 1998-2009e
• Figure: Neighbourhood sales growth % vs total store retail 1998-2009e
• Figure: Sales growth by location 1998-2009e
• Figure: Y-o-y change % in n' hood space vs. total retail 1998-2009e
• Figure: Space growth by location 1998 to 2009e
• Figure: Y-o-Y change % in store numbers n' hood vs. retail 1998-2009e
• Figure: Y-o-Y change % in store numbers by location 1998-2009e
• Figure: Convenience market sales growth 2004-2009e
• Figure: Components of convenience market - sales 2009e
• Figure: Components of convenience market - stores 2009e
• Figure: Forecourt sales growth 2004 to 2009e
• Figure: Leading oil companies n' hood sites with a shop 2007-2009
• Figure: N' hood forecourt shops penetration of petrol stations 2005-2009
• Figure: N' hood petrol station fuel brands & shares of shop sites 2009
• Figure: Neighbourhood food specialists sales growth 2004-2009e
• Figure: N' hood vs total food specialists sales growth 2004-2009e
• Figure: N' hood vs. total food specialists store number growth 2004-09e
• Figure: Total food specialists sales growth 1998-2009e
• Figure: Total food specialists store number growth 1998 to 2009e
• Figure: Off-licence sales growth 2004-2009e
• Figure: Neighbourhood Pharmacists sales 2004-2009e
• Figure: Alliance Boots pharmacy market share 2004-2009e
• Figure: Alliance Boots share of NHS market 2004-2009e
• Figure: Alliance Boots share of OTC market 2004-2009e
• Figure: Lloydspharmacy retail pharmacy market share % 2004-2009e
• Figure: Lloydspharmacy share of NHS and OTC markets % 2004-2009e
• Figure: CTN sales growth 2004-2009e
• Figure: Retail spending by location 2008 and 2013e
• Figure: Neighbourhood sales 1998-2013e
• Figure: Neighbourhood sales 2008 and 2013e
• Figure: Neighbourhood space 1998-2013e
• Figure: Neighbourhood store numbers 1998-2013e
• Figure: Neighbourhood winners & losers in sales & space 2008/09
• Figure: Market share changes of profiled n' hood stores 2008 on 2007
• Figure: C-stores market shares 2007-2009e
• Figure: The Co-operative food operating profit to January 2004-2009e
• Figure: The Co-op n' hood sales and growth to January 2004-2009e
• Figure: The Co-op Group neighbourhood market share 2004-2009e
• Figure: The Co-op Group convenience-store market share 2004-2009e
• Figure: Costcutter neighbourhood sales and growth to April 2004-2009e
• Figure: Costcutter neighbourhood market share 2004-2009e
• Figure: Costcutter c-store share 2004-2009e
• Figure: Budgens neighbourhood sales and growth to Dec 2004-2009e
• Figure: Londis n' hood sales and growth to December 2004-2009e
• Figure: Musgrave NI n' hood sales and growth to December 2004-2009e
• Figure: Musgrave GB n' hood sales and growth to December 2004-2009e
• Figure: Musgrave neighbourhood market share 2004-2009e
• Figure: Musgrave c-store market share 2004-2009e
• Figure: Booker Group n' hood sales and growth to March 2004-2009e
• Figure: Premier neighbourhood market share 2004-2009e
• Figure: Premier c-store market share 2004-2009e
• Figure: Sainsbury n' hood sales and growth to March 2004-2009
• Figure: Sainsbury neighbourhood market share 2004-2009e
• Figure: Sainsbury c-store market share 2004-2009e
• Figure: SPAR n' hood sales and growth to December 2004-2009e
• Figure: SPAR neighbourhood market share 2004-2009e
• Figure: SPAR c-store market share 2004-2009e
• Figure: Tesco neighbourhood sales and growth to February 2004-2009
• Figure: Tesco neighbourhood market share 2004-2009e
• Figure: Tesco c-store market share 2004-2009e