Talking shop: The growth of the value variety retailer
Analysts believe value retailers will continue to gain market share but are unconvinced they will replace the traditional supermarket
Dutch value retailer Hema last week announced its planned foray into the UK market with the launch of two London stores by the summer. The move follows the flotation of Poundland on the London Stock Exchange and underline value retailers becoming a more serious player in the UK. But do the country's major food retailers have a serious competitor on their hands? Hannah Abdulla reports.
As incomes are squeezed, the UK population is increasingly on the hunt for a bargain. Value general merchandise retailers - from B&M Bargains and 99p Stores to the recently floated Poundland - have continued to attract UK consumers. The trend is attracting retailers from overseas. Dutch retail Hema, which plans to open its first outlets in the UK this summer, last week told just-food it planned "to open as many stores in the UK as possible". It hoped British consumers would "embrace Hema".
And why shouldn't they, asks Shore Capital analyst Clive Black. "Such stores are gaining popularity because they tend to offer straightforward and generally convenient value, compared to many incumbent and traditional retailers," he says.
Richard Clarke, senior research associate for European food retail at Sanford Bernstein, agrees. He says it is not just price that is drawing in consumers but the location of the stores.
"These stores tend to be on high streets and that's buying into a trend across the market - people like that convenience. If they can put the stores in the right places and people walk past and see they're selling 2l bottles of Coke for GBP1, it's going to draw people in."
And they're "becoming better" at what they do, Clarke adds. "These places were synonymous with cheap toys a few years ago and now they are executing better and they are quite well capitalised - they are being taken seriously."
Clarke says the market share of value retailers is growing. "They are probably at 2% of food retail spend at the moment," which is "quite a lot" he adds, and would be attracting more attention of food manufacturers.
Black says suppliers have to look at these growing parts of the UK grocery retail sector. "Convenience, discount and online are the areas of the market that are expanding and the brands need access to growth channels; if they just depended upon large retailers losing share the future would not be bright," he adds.
But how concerned should the UK's major supermarket chains be about the growth of the general merchandise discounter?
Keith Bowman, an equity analyst at Hargreaves Lansdown Stockbrokers, says supermarkets are reappraising their offer and their store formats. He says more retailers are looking at reducing their expansion plans, resulting in an "end" to hypermarkets and a shift to "more localised convenience stores."
"That also plays on consumers trying to reduce costs. It's another avenue in terms of going local rather than travelling further. And it's time as well - anything a consumer can do to save time is also a factor," he says.
Clarke says the multiples' recent moves on price come in part as a result of competition with value retailers. "In the last few weeks we've written about the change of [major multiples] trying to compete among themselves and an acknowledgement that the main players they are losing people to is the cheaper end of the market."
The likes of Asda have used more round price-points, an apparent nod to consumers' interest in buying products for, say, GBP1. Clarke believes such moves are "headline-grabbing" attempts to draw attention back to the major multiples. "If you can put a price on your website or TV ad saying this is GBP1 - it looks good and gets people through the door," he says.
However, he is convinced the major multiples have the value retailers "on their radar." He says: "I wouldn't be surprised if these fast-moving, high-volume products - Heinz baked beans and Coca-Cola - you'll see a few attention-grabbing headlines saying 'we're also GBP1 on these'," he says. "[Retailers] need to engage with their customers, listen to them and provide what they want."
That said, the value retailers still fall short in some areas. The food ranges in the likes of Poundland and 99p Stores major on ambient, snacks and confectionery, far short of the ranges in UK multiples.
"They don't do any fresh food - they've got to rely on someone willing to go to them for a bargain but go elsewhere for the rest of their shopping. That doesn't mean they are declining in popularity but it does put a cap on how far they can go," Clarke says.
"When new players get into this market they think food retailing is an easy market to be in. When they get into the reality of it, they realise it is not that easy. Branded products tend to be easier; you can go and speak to Mars and you can go and speak to Coca-Cola and get those products. With fresh goods you need to guarantee supply - people are going to be relying on those products -you've got to build up a supplier relationship and work out what the quality is. It's a difficult transition for someone like Poundland to do.
"Plus they're quite small stores. If they're going to put fresh produce in there, that's got to fit in somewhere. So either it will make it cluttered, or will mean replacing more non-food with food."
He adds their position as a "bargain retailer" may mean they always remain a "complementary" store, additional to where people do their main shop. "Their key market, is 'we're a bargain come and get your branded goods'," he says.
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