Supermarkets sweeping clean

The days when supermarkets would sell nothing but groceries are long gone, with many outlets increasingly depending on the sale of non-food products

The supermarket experience has changed significantly in recent years due to aggressive expansion, increased financial backing and the trend towards bigger floor areas. Influenced by the success of hypermarkets in Europe, supermarkets in the UK have grown from large grocery stores to huge one-stop outlets designed to cater for all their customers’ retail needs.

Supermarket retail is now a multi-billion pound business, with more than &£69bn spent by consumers in the year to November 2003. The market has grown by four per cent in the past 12 months, and forecasts by Taylor Nelson Sofres suggest that it will experience similar growth in 2004.

The groceries sector continues to be the main revenue stream, constituting 81 per cent of total supermarket sales in Britain. However, growth in this established market is slowing and the major area of expansion is now non-food goods, such as electrical goods, mobile phones, clothing and home entertainment.

Traditionally, the non-food market has been confined to sales of health and beauty products and household goods. However, in the past two to three years, leading supermarkets have been investing much more heavily in expanding their non-food offering.

It is an investment that is beginning to pay off. The non-food market is worth &£6.4bn and has grown by ten per cent in the year to November 2003. The largest non-food sector is toiletries, which is worth &£2.4bn for this period, and is almost three times the size of the next largest market – clothing and footwear.

However, growth in these established markets is beginning to level off, and new market entrants, such as electrical and mobile goods, are growing and showed an 18 per cent increase in sales in the year to November 2003. Sales of home entertainment products in supermarkets have shown a significant growth of 16 per cent during the same period. This has been driven by the huge increase in DVD sales nationwide. This suggests that new market entrants could be key drivers of growth and expansion in 2004.

To date, Tesco has led the way in the sale of non-food products, and is still the market leader in sales of home entertainment and leisure goods. However, Asda is following hot on its heels and is now the leading UK operator in sales of clothing and household goods. Data from TNS Superpanel shows that Asda’s share of the supermarket clothing sales market stands at more than 50 per cent. Its household goods sales share is 27 per cent. Tesco’s share is 34 per cent and 24 per cent respectively.

In addition, in the year to November 2003, Asda achieved greater growth in the total non-food sector at 16 per cent, compared with 12 per cent growth at Tesco. This has left the most recent entrant to the market, Sainsbury’s, in third place, some way behind the competition.

Historically strong in grocery sales, Sainsbury’s has only focused on the sale of non-food goods relatively recently. While achieving strong growth in 2002, Sainsbury’s has lost market share across many non-food sectors in the past year.

Competition is also increasing, with smaller store operators such as Kwik Save and Somerfield investing in non-foods. Somerfield in particular generated strong growth in sales of household and electrical goods during 2003.

As spending on non-food products increases – each UK household spent on average &£200 in the year to November – operators have realised the market potential for non-food goods, and as competition between operators increases, pricing strategies is becoming more important.

Analysis by TNS shows that on average 20 per cent of non-food products are bought on Saturdays. This means that children and partners are more likely to be present to influence buying decisions. However, Thursdays are more popular for purchasing electric goods, mobile phones and leisure goods. Retailers should target special offers at these peak shopping times to help maximise sales.

Targeting key consumer groups is also essential. The key group driving sales of non-food goods, particularly home entertainment and clothing, are households with children.

With supermarket retailers continuing to penetrate new markets, their profile is likely to adapt further over the next decade. Tesco and Sainsbury’s already offer banking, insurance and credit card services and TNS predicts that take-up of other professional services is likely to continue as they develop an even broader remit.

One sector that supermarkets have found difficult to penetrate is the top end of the non-food goods market, such as quality clothes brands, luxury cosmetics and toiletries and specialist gifts. These markets are proving harder to target as few consumers are willing to buy clothes for an evening out from the same place that they buy their bleach.

This difficulty also owes something to the brand perceptions of leading supermarkets. Many of the operators have spent years convincing consumers that they are offering excellent value for money. This means that none of the leading supermarket brands are consistent with perceptions of brands from the high quality and luxury goods market. As a move into selling upmarket brands is a significant source of potential revenue for supermarkets, it is an issue that all operators are likely to tackle.

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