Tesco to steal convenience crown from Spar

By Anita Awbi

- Last updated on GMT

Related tags: Tesco, Asda

With its hefty buying power and unfettered growth strategy, the
UK's leading supermarket chain Tesco is set to snatch the
convenience retail top spot from Spar, analysts predict.

According to London-based data analysts Verdict, the local neighbourhood is the latest area to experience the Tesco steamroller effect, as the international retailer continues to build considerable inroads into the lucrative convenience market.

Tesco increased its neighbourhood market share by 0.4 per cent in 2005 to 5.4 per cent, which may not sound a great deal but in a sector made up of independent shops and co-ops, the supermarket chain has managed to take joint second place with Irish operator Musgrove, of Londis and Budgens.

Spar leads the £44.1bn neighbourhood market by a marginal 5.6 per cent.

Verdict retail analyst Nick Gladding said: "[Tesco's] closest rival - current market leader Spar - is predominately a franchise operation, with limited control over individual stores making it harder to deliver sales growth initiatives."

"With Tesco's formidable track record of growth, it is hard not to see Spar being forced to relinquish its crown during 2006."

But Spar has the distinct advantage of appealing to the local community through well-established links.

The independents are more likely to offer a stronger service, with DVD rentals, bill payment services and provincial Post Office counters, so the larger supermarket chains will have to work hard to appeal to local shoppers, warned Verdict.

"Promoting local events and developing product ranges and services that cater for the immediate population will enable [independents] to forge closer ties with the local community - something the major grocers have yet to achieve,"​ said Gladding.

Average sales densities in the neighbourhood retail sector grew two thirds faster than in the retail sector as a whole, and now amounts to £527 per square foot, according to Verdict data.

And as the sector becomes more lucrative, supermarket operators are moving in to open small-scale neighbourhood stores, piling the pressure on smaller businesses that are struggling to maintain profit margins.

As the fastest growing chain in the sector, Tesco may come under fire from small business groups and parliamentary commissions that are calling for the Office of Fair Trading (OFT) to alter its outdated two-market definition of the grocery sector.

Currently an operator holding a large share of the food retail market will not contravene competition laws when expanding into the convenience sector, as the two are seen as separate markets.

So far this has allowed Sainsburys, Tesco and now Asda to permeate the neighbourhood market, attracted by the sales figures.

And with big business focus on the small sector, Tesco is poised to take the number one position from Spar in the near future.

Related topics: Retail & Shopper Insights

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