In 2006, for the first time, the leading supermarkets accounted for more than 1 in 10 pounds spent on all non-food retail products sold in the UK.
And taking into consideration their ambitious space growth plans and growing online and catalogue offers, Verdict expects grocers’ non-food sales to increase by more than one-third by 2011
Worth £17.5bn in 2006, Verdict expects the value of non-food sales at grocers to grow by 34.4 per cent over the next five years to be worth £23.6bn in 2011.
Senior Retail Analyst at Verdict, Nick Gladding, said, “Alongside the growth of online retailing, the expansion of grocers into non-food is set to be the most fundamental challenge facing traditional UK retailers over the next five years.
“As grocers’ influence increases and the breadth of their offer diversifies, a wider group of retailers will come under pressure.
He added, “Retailers like HMV, WH Smith and Woolworths, who have already felt the impact of grocers’ expansion into non-food, look likely to be joined by many more players from sectors as diverse as electricals, DIY and furniture.”
Following years of successful growth in areas like music & video, homewares and clothing, the leading grocers are leveraging their experience and demonstrating confidence.
They are pushing the boundaries of range coverage and in-store execution and, perhaps more importantly, they are aggressively pursuing multichannel, multi-format strategies
Tesco and Asda continue to lead the assault but Sainsbury and even Morrison are set to ramp up their non-food space over the next five years.
Taking account of these factors, alongside a more cautious consumer outlook which should favour grocers, Verdict expects non-food sales at the major supermarket chains to continue growing rapidly over the next five years.
In the short term new space will underpin most of grocer’ non-food growth, but Verdict believes multi-format and, especially, multichannel development will provide the vehicle for longer term non-food development among leading grocers.
In light of tough planning restrictions for superstore development, Asda and Tesco are already driving alternative channels for their non-food expansion which Verdict sees as key.
Pleased with its trials, Asda is ramping up its portfolio of Living stores, with a long-term aim to open up to 300 outlets across the country.
While Tesco has trialled a non-food only format , Homeplus, the direction of its growth is more likely to focus on Tesco Direct, its multichannel proposition launched in Autumn 2006.
These new channels to market mean that grocers can enlarge the scale of their existing non-food ranges as well as target categories that traditionally have not been viable for grocers due to space constraints.
In particular furniture development has been made possible by new strategies.
Service is likely to be the key weakness for grocers going forward and specialists must create an opportunity out of that.
The foundation of grocer’ non-food propositions remain the two pillars of price and convenience, with range playing an increasingly important role.
While Verdict sees opportunity to enhance customer service through the introduction of more in-store product information, it does not expect levels of specialist service staff to increase significantly from existing levels.
As such specialists must use the quality of service as their principal point of difference.
So they should ensure their margin mix is rich enough to maintain investment in staff knowledge and wider training initiatives.
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