Sainsbury is now focusing on acquiring part of TM Group rather than its entirety as it had once hoped. The convenience shops within the TM Group’s network are of greatest appeal to Sainsbury because of its drive to expand into different store formats.
J Sainsbury, one of the UK’s leading supermarket chains, has ditched plans to acquire the entire TM Group, the convenience store retailer that owns brands such as Martins and Forbuoys. Instead, the company has decided to identify and acquire the best stores within TM Group’s 1200-store network. Sainsbury is in exclusive talks with Montagu Private Finance and Electra Partners, the two private equity firms that own TM Group.
Sainsbury has been searching for avenues to expand its convenience store network but does not want to take on TM Group’s small corner stores, which are more suited to selling confectionery, tobacco and newspapers than groceries. TM Group has approximately 300 stores that could be classified as convenience stores, of which only a minority meet Sainsbury’s stringent requirements.
In recent years, major food retailers have been turning their attentions to convenience stores. This increased interest has been driven by the difficulty in obtaining planning permission for new space. At the same time, regulators have become anxious about the dominance of supermarkets within the UK’s food retailing industry, therefore blocking any major acquisition by the large supermarket chains.
Earlier this year Sainsbury acquired Bells, a northeast England chain of convenience shops. However, it lost out to Tesco in the battle for Adminstore, which operates the London-based stores Europa, Harts and Cullens.
Sainsbury has been under pressure since losing its second place in the UK food retailing market to Asda, and the acquisition of the strategically positioned stores within the TM Group network might be a starting point. It is, however, unlikely to give Sainsbury a significant presence in the convenience store market. It would be advisable for Sainsbury to focus on convenience stores in the larger cities rather than opting for greater geographical spread. Alternatively, the company could enter into partnerships with petrol stations to tap into the huge forecourt market.
Sainsbury will need to act quickly to avoid missing out on further acquisitions within the convenience store market and to sustain its position in the food retailing market.
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