Sunday, May 22, 2005

What’s the story behind the story?

I read in yesterday’s Financial Times (21 May 2005, London edition) that convenience grocery stores are growing their sales faster than overall grocery market, 5% growth as opposed to 4.2% growth for the whole market. The piece also mentions that over the whole year convenience stores are expected to grow 25% more than supermarkets. (Full story here, subscription required.)

What I wonder are the forces behind this growth? Why are small grocers growing so much faster than the big ones?

I’d like to think that customers have finally got fed up with “buy 2 get one free” type offers that obscure the real price and discriminate against those on low income or single people.

David Anderson has an interesting piece in his blog noting how the batch size for grocery purchases in Japan is much smaller than is typical in the USA. I’d say that UK purchase size is generally smaller than in the USA but is catching up. After all, it’s in the interests of WalMart-ASDA, Tesco and other big retailers to sell more. I read (the FT again?) or heard (BBC radio 4?) recently that half of all food in the UK is wasted. While I don’t think this happens in my house I can imagine its true, we do throw away lot of food, especially the “buy 4 widgets get 2 widgets” type where we can’t possibly eat 4 widgets before they go off let alone 6!

Anyway, I digress, I would be surprised if enough people where getting so upset with larger batch sizes and buy-get-free offers to bring about the statistics mentioned at the top.

Next theory: the sanity factor - sanity as in clean, rather than not-crazy. In the last few years most of the big boys of British grocery retailing have moved into the convenience sector: Tesco, Sainsbury’s, etc. Compare one of the small Tesco Express stores with your traditional local convenience store. The Tesco may not actually be cleaner but it looks cleaner, we are being offered a brand, something know, something safe, as opposed to a one-off at the corner shop. (Some of the more traditional local stores have also started to up their act, install bigger windows, use brighter colours.)

So, simply an improvement in the quality and branding of local stores is one factor I think.

Next, I think these changes in the market reflect some lifestyle changes. There has been an increase in city living in the last few years. Such people have the option of convenience stores - people living our in the suburbs, particularly on new middle class estates, probably don’t have any option but to get the car out and drive to the large supermarket.

One lifestyle change has effected me directly: Internet grocery shopping. We started doing this about a year ago - shortly after I got rid of my car. At first we bought everything online. Gradually though we’ve switched to buying more stuff locally. We still have the Ocado van visit us every regularly (9 to 14 days) but this tends to be the big heavy stuff, stuff we can store. I’ve been increasingly using my local high street to buy fresh stuff.

At first this felt strange, going to the butchers and asking for beef-mince, pork chops, etc. Almost like something from one of those “learn French” school textbooks. I’d never done it before - or very rarely. I came from a generation brought up on supermarkets.

Now I’ve got use to this way of shopping I love it. My butcher has a better selection of meat than the supermarket although the green grocers doesn’t compare so well and I feel more involved in the locality. I’m also convinced it cheaper.

I’d love to think that as more people shop online the high streets of the country will experience a renewed importance. In particular, I’d love my high street to get a renewed importance. Acton High Street needs: a baker that doesn’t shut at 10am, a good deli where I can buy fresh cheese, good quiche and fancy continental foods, plus a good off license wouldn’t go amiss. Of course I could just accept that this is Acton and move a couple of miles down the road to Chiswick!

Before I finished, one more point on those statistics. However you look at the grocery market it is growing. This doesn’t seem right. How can a market just grow and grow? After all, economic theory tells us that as people get richer a smaller portion of their income goes on food. So I can understand more clothes shops, more book shops and so on but groceries? Why is the sector expanding?

Some growth will be due to an expanding economy and higher incomes, some will be down to clever retailers finding new ways to sell us more food we won’t eat and some of it will be people buying further up market, e.g. organic carrots instead of regular carrots. But what else is driving it?

Many of the answers to these questions are probably contained in the IDG report cited by the FT but that will probably cost me several thousand pounds to read. So, I’ll have to stick to hypothesising.

At the end of the day I don’t know what forces are at work here, and forces are important.