LDC’s latest report, which covers discounters, convenience stores and supermarkets, shows that while discounters are growing fastest in shop numbers, their rate of expansion is slowing. They added +1,225 stores net in the past five years and opened +162 stores net in 2016.
Convenience stores continue to open but expansion has also been slowing strongly since 2013. The pressures causing this slowdown are expected to increase. Sainsbury’s Local is the fastest growing convenience fascia, gaining a net increase of +38 stores in 2016, compared with Tesco Express’ net increase of +13 stores.
Store numbers for The ‘Big Four’ supermarkets (Morrisons, Tesco, Sainsbury and Asda) have hit a growth barrier in crowded market. They added +223 units since 2012 but numbers fell by net -8 in 2016.
The report added that growing alternative formats such as garage forecourt stores and online sales promise to continue to ramp up the pressure on store numbers as a whole.
LDC director Matthew Hopkinson commented: “Big box food retailing is under the greatest pressure since supermarkets first came into being.
“This is resulting in a change or close (die) culture. This market, alongside food and beverage, has the most intense levels of competition. So it’s one that will see ongoing and significant change in 2017.
“In 2016, we saw a fall in the numbers of supermarkets among the ‘Big Four’. But then we also saw far weaker growth in the numbers of convenience stores, and even a cut in the rate of growth for discounters overall, even as some are expanding rapidly.
“In the short term, as we have seen with Sainsbury’s, input cost rises against attempts to keep selling prices down are pressuring profitability, and all operators are having to wrestle with this.
“In the longer term, competition is only going to intensify as the options diversify. With Amazon extending its Fresh grocery delivery service to more than 300 UK postcodes and rumoured to be looking for 1,300 warehouse units across Europe to ramp up its local delivery offer, and with Marks & Spencer reported to be considering plans to branch out into online food sales, the so far subdued online food market in Britain is ripe for expansion.
“But looking even further ahead, any reversal of net EU migration due to Brexit could take a bite out of the £154 billion UK food market – and that really could add to the basket of challenges to the industry.”
The report concentrates on data for a specific group of retailers in 1,425 towns across Great Britain, with a focus on results from a group of 605 towns using population data for a 10-minute drive time.
Dr Clive Black, head of research for Shore Capital Markets, said: “The 2012-2016 time period covered in this report deals with one of seismic change for the supermarket and large store format in particular and the discount channel too.
“In essence, the era of large store openings and extensions has come to an end, and future LDC five-year reports can be expected to more dramatically characterise this process.
“However, the key message of the report, that the great space race is over, comes across loud & clear. Additionally though, we also see that the growth rates for convenience stores and discounters are decelerating too – partly reflecting the larger base of such outlets but also some channel maturity.
“We are also very interested to note perhaps the most encouraging data point from LDC for the ‘little man’; the number of independent convenience stores has increased between 2012 and 2016. So entrepreneurship is far from dead in this nation of shopkeepers.
“The degree of innovation and distinctiveness in the delicatessen and local grocery channel is something that may become more mainstream in future years, as shoppers seek more individuality in an age of standardisation.
“Any such moves will arguably further pressurise big chains – as we have seen in other categories, such as the beverage segments with craft ale and now gin.”