The Big Retail Shake Up: What’s Next on the Horizon of the Food Retailing Landscape?
By Alexandra Eatough
Could Morrisons’ recent announcement that it will shut 23 of its M Local stores and delay “significant” delivery of more M stores following a year-on-year drop in profit before tax of 52%, signal the on-set of a long-run decline in UK grocery store development activity?
For many years, the retail big hitters of Tesco, Sainsbury’s, Asda and Morrisons have sought ever increasing floor space expansion. It now appears the tide has turned with announcements from three of the four main UK grocery retailers outlining store closures and scrapping plans for new stores. Tesco announced that 43 unprofitable stores will be closed with a further 49 planned stores, amounting to 186,000 sq m of floor space, to be cancelled. Similarly, Sainsbury’s has scrapped plans for new stores. Along with the latest announcements from Morrisons, this poses some important questions – what will happen to the closed stores and halted sites and what does this emerging trend signal for the future of grocery retailing in the UK?
Spurred on by the discounters, Aldi and Lidl and the re-entry of Netto, the big four are being forced to cut prices, streamline, and rationalise their property portfolios.
Many of the abandoned sites were seen as catalysts for wholesale regeneration of areas. So what happens now? Where is the money going to come from to cross-fund these promised major development schemes? What repercussions will there be for wider regeneration at these sites and their localities now that developer contributions cannot be reaped by local planning authorities?
The retailers will still need to derive some sort of value for the land for the sake of their shareholders. They will not, however, be thrilled at the prospect of selling land to competitors (if indeed competitors are even interested!) even if it means the potential to yield higher retail values. Instead, it is likely restrictive covenants will be drawn up through the sales process to restrict retail use of the land by competitors. This begs the question, who is deemed a big four competitor? The grocery behemoths may not previously have considered the discount upstarts as serious competitors, but with the march Aldi and Lidl have stolen over recent years, would they now be considered valid challengers by the big boys? This is particularly the case since their market shares increased to 5% and 3.5% respectively last month. Alternative uses for such sites could include housing and internet distribution centres, or even mixed use schemes anchored by discount food retailers. A geographical dimension could emerge with residential ruling down south and leisure re-surfacing elsewhere. Ultimately, retailers could be forced to take a hit on value if they want to sell their landholdings.
Whilst there are a number of town centre examples of these axed sites, including Kirkby, Margate, Bexleyheath and Dartford, all of which had been reliant on the anchoring of a retail big gun to bring about town centre regeneration at their sites, many of the axed sites are large and out-of-centre. How do redevelopment plans for such out-of-centre sites fit with the Chief Planning Officer’s recent reiteration of the ‘town centre first’ policy which may or may not be an indicator for further announcements on retail planning policy?
But it is not all about the large, out-of-centre sites. Morrisons plan to close 23 of its M Local format stores and Tesco’s announcement that more than half of the 43 unprofitable stores to close will be Tesco Express format suggests that store format is one contributing factor to these recent announcements. Morrisons has arguably entered the convenience sector very late in the day. The location of their stores, without apparent regard to their competitors’ locations, and their lack of an obvious Unique Selling Point or identity, mean that accusations could be levelled at them that they have rushed out their M Local format without getting it quite right. Morrisons has itself stated it would review its “site selection criteria” going forward and it will indeed be interesting to see which stores will face the chop and if this provides any clues as to where they have been going wrong. For example, will city centre store closures create voids on the high street?
These examples do not however signal a failure of the small format concept. Indeed, discounters Aldi and Lidl have demonstrated this strongly to the contrary, as have Marks and Spencer and Waitrose with their smaller Simply Food and little Waitrose stores. Overall growth will come from smaller stores as the shopping habits of UK consumers shift from weekly trips to big out-of-town supermarkets to more frequent visits to mid-size or local stores. However, as they say, size isn’t everything. Together with store size, the specific offer and location of stores call for a much more nuanced look at the situation.
HOW Planning acts for Aldi by securing planning permission for their new stores in the north west of England. Judging by Aldi’s store roll out plans for the coming year, it would appear their format is what the people want. Aldi plans to add a million square feet of floor space (around 60 new stores) in the UK in 2015. Putting this into context, this is bigger expansion than Sainsbury’s, Morrisons and Tesco put together.
In this period of flux, it remains to be seen how the food retail landscape will change and exactly what the big retailers’ next moves will be. But I would hazard a guess that whilst the retail development pipeline may take a hit in terms of floor space developed, the number of stores built could well increase from historic levels where huge superstores were the order of the day, with the continued predilection for the smaller format. However – a word of caution – the retail big hitters first need to get their new look formats right before rushing anything out. In the meantime, whilst the big cats are away, I’m sure the discount mice will enjoy their play.