The supermarket sector in the UK is one of those industries whose performance attracts attention outside of the business pages, such is its health perceived to be linked to the general well-being of the economy at large.
This of course has been heightened in the last 18 months as analysts pour over the sales data coming out of the supermarket chains looking for evidence of dwindling or returning consumer confidence and a sign of how spending behaviour has been affected by the recession.
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Those in the UK looking to promote the idea we are headed towards the green fields of recovery will latch on to the frenetic activity surrounding upmarket retailer Waitrose this week.
In the space of a few days, we have had news of store opening in the Channel Islands and Bahrain, plans for product launches in the US and, perhaps most encouraging for the chain, figures from the analyst group Kantar showing share gains in the UK market.
Economic bulls will latch on to the share gains as evidence the UK consumer has regained a spring in the step and is once more trading up. If that’s true, the threat to Waitrose, of course, is that any double dip recession would hit it hard. But this simplistic view would be to do Waitrose a disservice.
“An upturn in the economy is certainly helpful to Waitrose, however, I don’t think it is the primary reason for their success,” says Neil Saunders, retail analyst with Verdict. “Indeed, Waitrose was witnessing some good levels of growth during the depths of the downturn.”
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By GlobalDataThe evidence from the UK’s retailers and Kantar certainly points at consumers trading up again. It seems that whilst more expensive purchases, such as cars and houses, remain off-limits, more affordable luxuries are back in vogue. It’s a trend that fits Waitrose’s niche perfectly.
However, to focus on this trend alone ignores the efforts Mark Price, managing director, and his team have made to broaden the company’s appeal and reach.
“Its success over recent years of growth, has been helped by two main factors: new space and its Essential range,” said Justin Scarborough, an analyst at RBS.
Last year, the chain opened 25 new stores representing an additional 373,000 sq ft (9.2%) of selling space. These included 13 acquisitions from Somerfield/Co-op and one former Woolworths shop. The extra space contributed significantly to gross sales growth of 11.1% on a 52 week basis. (Like-for-like store growth was only 3.6%).
The company said in its annual report that it planned another 22 branch openings this year.
But as well as its reach, Waitrose has transformed its offering.
“In terms of what’s driving their growth I would identify three things. First, they are expanding their reach through new store openings which is helping to boost market share. Second, they have very successfully positioned themselves as a destination which provides quality at a reasonable price: they are no longer viewed as being vastly more expensive than other grocers,” says Saunders.
“Third, they are constantly innovating and coming up with new initiatives to aid growth. The pace at which Mark Price and his team operate is often quite breathtaking.”
Key to this is the ‘essential Waitrose’ product line.
Scarborough tells just-food that essential Waitrose generated around GBP0.5bn of sales last year and the company expects GBP750m this year.
“Together with price investments over the past two years, Waitrose ranges and improved value perception have enhanced customer loyalty,” he says.
Saunders concurs: “The launch of essential Waitrose is key to their success. They provided a cheaper option for their core customers and for customers looking to buy quality food at reasonable prices. This was done without sacrificing or diluting the quality perception of any of the other things that made Waitrose special and different from other players.”
Of the stories that hit the headlines this week from Waitrose, two concerned forays into international markets: the possible launch of the Duchy’s brand in the US and the opening of a store in Bahrain.
“The Duchy news is significant as it demonstrates that Waitrose’s focus on international is more about exporting the brand and product than about building stores,” says Saunders. “This is a relatively low cost, low risk way of developing an international presence. Duchy should do very well in the US and should generate a nice additional income stream for Waitrose.”
But whilst the international news may grab headlines, it deflects attention away from what remains core to the company’s growth. It shouldn’t be forgotten that the chain still only commands 4.2% of the UK grocery market and the company’s target is to double that over ten years.
“To be honest, Waitrose is really dabbling with international expansion. However, this is probably the right thing to do as they have more than enough opportunities in the UK to take advantage of,” says Saunders.
“That said, they have made some progress in Dubai and I think they will continue to roll out stores in the Middle East at a steady pace in partnership with Fine Fare. As for more competitive developed markets: I think Waitrose could do well in these but it would be a struggle and would take a very significant investment to build up market share.”
