Tesco, the leading supermarket operator in the UK, is set to purchase T&S Stores group for £377m (US$)588m. This follows the Co-op’s purchase of the Alldays convenience chain. Clearly many players see the convenience store channel as an attractive proposition, but future success will depend on altering the traditional offering.
The UK convenience store (c-store) channel has been one of the faster growing areas of food retailing in the UK, with total food, drink and personal care sales through this channel in 2001 reaching £17bn.
This development has not gone unnoticed, but growth has not been as great as expected during the mid to late nineties. However, the latest round of acquisitions show that the c-store channel again appears to be in the ascendancy.
Tesco is purchasing all of T&S’s 1,200 stores, which include the One Stop and Day & Nite brands, for £377m (inclusive of £153m of debt) but is planning to divest the Dillons newsagents and Supercigs tobacconists brands. Around 450 stores will be converted to the Tesco Express format.
Tesco should certainly be able to boost performance and operating profit at the newly acquired stores, but in the long term all convenience operators will need to update the format to target the latest consumer trends.
The hype around c-stores focuses on their ability to target the young, urban professional, or the “cash-rich, time-poor”, as they are often referred to. But in 2001, people of social grade C2DE, that is manual and often less well-off non-professional people, accounted for 65% of c-stores sales. If this group is ignored the lion’s share of the market will also be ignored.
Consumers are also increasingly eating and drinking “on-the-go” and retailers will need to update product portfolios accordingly. Top-up shopping is on the increase too. Tomorrow’s c-stores will need to offer far more convenience goods, along with products that fit in with top-up shopping and on-the-go consumption without excluding their core customers.
Furthermore, altering the offering according to the time of day, which Tesco is currently leading, will also become more important. With the number of c-stores in the UK set to fall, making these types of changes will be crucial.
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