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UK Retail Briefing - September 2015
Analyst’s comment
 
Rationalisation in the C-store market
It’s been a busy month for the symbol groups:

●	Morrisons sold M Local to a new group that will convert them to a new format called “My Local”
●	My Local has joined Nisa
●	Conviviality has taken over Matthew Clark
●	The Booker acquisition of Londis and Budgens from Musgrave has been approved
●	Costcutter reported a loss of £25m.

An underlying pattern?
There is an underlying pattern to these events. The environment for the symbol groups is becoming more challenging. All of these deals are about, in some way or another, building market power to allow their independent customers to compete more effectively in the market. There are other reasons behind most of these stories, but that provides a common thread.

Costcutter has been absorbing Mace and switched its buying group from Nisa to Palmer and Harvey. The disruption proved expensive.

Nisa has signed up My Local. It won’t make up for the loss of Costcutter, but it will help. For the new My Local business, such a deal was essential, to allow it to tap into some buying power. There is a continuing decline in some parts of the C-store sector, but it is mainly among those that have not joined, or have not been able to join a voluntary group. 

Conviviality’s deal is rather different. It is joining forces with another drinks wholesaler, but one that serves the on-trade and not the off-trade. Conviviality’s main retail brand is Bargain Booze.

Booker
Booker has snapped up Londis and Budgens from Musgrave. (See the Analyst Insight “Booker acquires Londis and Budgens, May 2015”) The two businesses had struggled as part of the Irish retail group and Booker has an excellent track record with symbol groups through its own Premier format. Premier is easily the largest symbol group by store numbers, though much smaller than Spar in terms of sales. Premier’s success has come from helping independents operating smaller stores. Where Spar stores are 2,500 to 3,000 sq ft (and sometimes more), Premier’s are likely to be nearer 1,000 sq ft 

So Premier must take a lot of the credit for the resilience of the smaller convenience stores, it has been able to give support in terms of marketing, promotions, supply, planograms and basic retail operations that would be extremely difficult for an unaffiliated store. But Premier is limited in terms of what it can offer. These smaller stores have a lower turnover and therefore provide less income to Booker than a typical Spar. Booker has to stick to the basics for Premier, its scope for the sort of product development that Spar can offer is very limited.

Londis and Budgens have a much bigger store size. Londis is not far short of Spar and Budgens operates many supermarkets that are well over the 3,000 sq ft Sunday trading threshold. These two businesses will bring expertise into the Booker operation as well as increasing its buying power. The new Premier – Londis – Budgens combination will be by far the largest symbol group by sales as well as stores and it will be in a powerful position in the market to challenge the likes of Spar.

It’s not just a question of buying power
As we have already suggested, these deals are not just about buying power, they are about everything else that an independent retailer needs to operate a store efficiently. But even this is only a starting point. C-stores have to compete in a constantly changing environment and it is not simply a matter of buying systems and controls. There may be a shift to buying on an as needs basis, but this is just part of a wider change in lifestyles.

Therefore C-store retailing needs new ideas as well. It’s a couple of years since we sang the praises of Eat 17, a Spar member that combines retailing with a burger bar and restaurant. (See “A future for convenience retailing”, Analyst Insight, July 2014) Such an idea may not work in many places, but the future for C-stores lies in serving the local customer base and that may open up many more opportunities than just selling them cans of beans.

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