David Rees: Editor's comment
The pernicious impact of business rates, for a long time a cause of irritation among retailers, has been taken up by the national media as a cause worth fighting for.
It’s welcome (and it’s about time) as it will add further pressure on the government to look at the whole system, but the fact that the consumer press are getting involved at all should be taken as a strong indication that the current system is unjust and broken. To base a business tax on the rental income of the property is bizarre to start with, and to revalue it after seven years means that you inevitably get huge disparities between winners and losers.
Those to lose out are small businesses in the South East, where property prices have climbed, and those to fare better are generally in less-affluent areas, including, of course, some very large warehouses for very large online retailers. And what is worse, to lessen the exposure of appeals on cash-strapped local authorities, the appeals system has changed so it’ll be harder to get any money back.
We’ve said it before and I’ll repeat it here: there’s only so much that tinkering with business rates can achieve. We need a new system of business taxation altogether.
While the announcement of the ‘Besco’ merger took pretty much everyone by surprise, on reflection perhaps we should have seen it, or something like it, a mile off.
The blurring of channels has become a feature of the UK food and drink market in recent years so it was just a matter of time before big retail and foodservice combined in a structured and strategic way. And, as a well-run, cash-rich and profitable firm, Booker would always be a takeover target for any large organisation able to make the right deal.
Booker’s earlier acquisition of Musgrave was highlighted as a fast-track to better fresh food and more efficient distribution to independently-owned stores. A strategic partnership with Tesco brings the same set of benefits, multiplied by about 100.
For many store owners, there is excitement at the prospect of linking their main supplier to the UK’s largest food retailer. With the cost base rising for all businesses, the bigger the scale of your supply partner, the better, or so the argument goes. But there are doubts about the linkage. For some, the prospect of being supplied by your toughest competitor sits a little uneasily.
There is also the question of store data. If you are a Budgens retailer, for example, you might have been competing hard against Tesco for a decade. How can you be sure that they won’t be able to view your sales figures? Admittedly, this might be fixed by the CMA as part of a regulatory assessment of the merger. Booker doesn’t have a direct data link to most of its customers anyway, and at Tesco-owned One Stop the franchisee data is formally separated from the company-owned stores as a legal requirement of the franchise operation. But I suppose if you were so minded you could form a reasonable picture of how stores in a particular area were performing from orders, delivery loads and schedules, and this would be theoretically possible under Besco as well.
For this merger to work for independent retailers, the key is trust. According to the notes accompanying the merger document, most of the value that the deal creates will be through synergies in buying and distribution, and if that turns out to be the case retail customers have every right to expect a share of these benefits. But down the line, say 10 years, is Charles Wilson still going to be there, or Tesco’s Dave Lewis? And what if the Tesco board at the time decides that supplying independent retailers is a low priority? Hence the uncertainty in the independent retail trade: this deal provides a lot to be excited about, but there is a lot to be taken on trust as well.
I don’t think it’s too late to wish you a happy new year, but I wonder what sort of year 2017 will be? There are many indications it will be tough, with increased wage and business costs, an uncertain household economic environment and more grocery stores opening despite the growth of online. But, at the same time, there are still opportunities to be had, and in a steady market such as food and drink there will always be as many operators on the winning side as those under pressure.
But 2017 is unusual in the sheer scale of the issues on the horizon, so perhaps the best way forward is to break the cycle of previous years and to forge ahead on a new model. Food to go is an obvious area to develop, as it fits perfectly within the instant consumption focus of a c-store. For some this means a rearrangement to put all the ‘eat now’ lines together, but for others it will involve a more ambitious refit with an in-store kitchen and more specialised staff.
It is more expensive and risky, of course, but the advantage of a kitchen is that it allows you to create your own brand of food and mealtime offerings as well as food to go. On a recent trip to Northern Ireland most of the stores I visited had their own selection of pies, puddings and meals prepared within in-store kitchens, and sold at a good price to busy shoppers.
All this is easier said than done, but plenty of stores are doing it, and independent c-store operators prove themselves year after year to be adaptable and resilient – and can usually respond to broad market changes and specific local opportunities quicker than big chains. If there is a theme for 2017 it could be ‘do it yourself’ – ask your customers what they really want, and then make it happen for them and for you.
There is no doubt about which issue will dominate political debate this month – our future with the EU. If you haven’t yet decided which way to vote in the referendum, we have our own take on what retailers think about the issues.
The image of the EU is that we pay in more than we get out directly (which is true, although the indirect benefits of membership are difficult to calculate), while it also creates a bureaucratic framework for business regulations. As far as local shops go, the business they do is generally with people who live within walking distance, yet they have to pay the same taxes and comply with the same regulations as those enterprises who trade internationally.
So I get why many might want to leave. But my view is that we should remain. Here’s why: if you need to source product and negotiate deals, scale helps. I can’t see how our national economy would benefit by withdrawing from the world’s biggest trading blocs.
Also, the regulation affecting us does not always come from Brussels. Take tobacco – the recent product directive is based on World Health Organisation guidelines, not the EU’s, and national governments all have their own rules when it comes to tobacco display.
Finally, if the Brexiters win, it would create an electoral mandate to ‘control’ immigration more strictly, and that sits uncomfortably with me just as I’m sure it would for many of you. Migration is caused by conflict and inequality, and the way we fix this is by increasing international co-operation, not by withdrawing from the room altogether.
Some of you will agree with this and some won’t, and I hope you are not offended by me volunteering a view. And if you are undecided, I hope that our feature helps brings some issues into focus.
It’s a mixed picture for independent convenience retailers in the 2016 Grocery Retail Structure, the annual project to count and classify grocery retailers in the UK.
In most years, the really interesting numbers are those that have gone up or down, but there is a fair bit of side-to-side to address in this year’s figures as well. Let me explain what I mean by this: the total number of c-stores is virtually identical year on year, but this hides a huge amount of change within the channel. After years of growth, a lot of stores have fallen out of the symbol sector, while the unaffiliated independent numbers have gone in the opposite direction.
While this is encouraging for the c-store industry – as it shows that there are new, viable independent stores being opened – it also reveals how symbol group bosses have in many cases moved away from the full-on pursuit of numbers and instead worked with retailers to find a more mutually beneficial solution, such as being in a retail club instead.
Outside of the independents, there are more of most other things: more multiple c-stores, supermarkets (mainly because of the discounters), specialist bakers, specialists full stop. And this doesn’t even take into account the growth in online shopping. So, in short, the figures confirm what we already believe; that there is more competition than ever, and a huge amount of dynamic change in the sector.
Things are looking better at Nisa these days after a financially ropey period last year.
The mainly new senior management team were in good spirits at the annual Stoneleigh exhibition last week, as they shared news of profitable growth and a firm foundation for future activity. And it was interesting to hear that most of the organisation’s activity – whether it is case pricing, promotions, distribution or member recruitment – is going to be increasingly based on hard facts and a steely focus on market realities in future.
Discipline for Nisa. It’s worth a try, I suppose. But, more seriously, there is a general move towards greater realism, professionalism and, yes, discipline across the entire convenience sector. Prices are deflated, costs are rising and retail is in over-supply, so only the leanest and most efficient will survive. And while most operators in the market are still looking to open more stores, a market landscape with many more stores overall is looking unsustainable in the long term, so I’m expecting a bit of a backwash with some high-profile store closures in the next months and years.
With this in mind, I think it’s time for everyone in the market, from the smallest store to the largest distributor, to stay in touch with reality.
There was a first for the industry last week, as a North Wales c-store became the first commercial premises in the UK to become a stroke information point. Local customers were able to have their blood pressure checked in store, and leaflets and other material will be available for the community all the long hours that the store is open, which is a much more convenient option than busy hospitals or GP surgeries.
Of course, it is precisely this community win-win that is being undermined by government proposals to devolve Sunday trading hours to local authorities.
The government claims that, because Sunday trading is “sensitive”, it is best left to people to decide locally through their elected councils or mayors. In reality we know that store catchment areas do not neatly correspond to local authority boundaries, and it is inconceivable that one major supermarket would stand idly by while their competitor a mile away is permitted to open for longer hours. So the liberalisation of hours in one area would create a domino effect across the country, threatening the livelihoods of thousands of small retailers. And while this would be a personal tragedy for the store owners and staff concerned, it would also be a tragedy for the communities that they serve.
There’s still just about time to lobby your MP to block the legislation, and if you are able to get to the campaign meeting in Westminster next Monday, the ACS, NFRN and Keep Sunday Special would welcome your personal support.
Over the weekend I was intrigued to read (credit where it’s due, in the Telegraph) that Tesco is to shut its two food-to-go concept stores in central London. The sites, at Philpot Street in the City of London and Villiers Street, near Charing Cross station, opened in September 2014 and March 2015 respectively amid much fanfare as part of the re-invention of Tesco, and attracted a lot of interest. Now, we hear, they are to close in early March.
Whereas once Tesco could do no wrong, now it seems it can do little right, although I should add that these stores were always going to be non-core, are not the only Tesco stores on the closure list, are costly to run and face stiff competition in the posh sandwich market from the likes of Prêt à Manger.
In a way it’s reassuring that sanity is prevailing at the mega-retailer, after years of vanity in the form of unchecked store building and development. But this should not diminish the appeal of food to go as a great opportunity across the c-store industry as a whole.
Prêt provides a good lesson in how to do food to go: high-quality ingredients, variety, good coffee, and service with a smile. In the eyes of the consumer, Tesco might be lacking a couple of these attributes, but I know plenty of independent retailers who score highly on all these fronts – Manchester Spar retailer Paul Stone, for example, has his own coffee brand, while I have been to c-stores on both sides of the border in Ireland where I would be happy to eat all my meals, every day. It does require skill and care, and a commitment to quality and service, to do well, but it remains part of the future for the industry.
A committee of MPs has urged the government to impose a 20% levy on sugary drinks as a solution to obesity. Advocates point to the “success” of a sugar tax in Mexico, where sales have fallen after a 4p per litre levy was imposed in 2014, but that is from a starting position where sugary drink consumption is an astronomical 43 gallons per person per year, and babies are weaned on soft drinks because the tap water is often of questionable quality.
I don’t see how the Mexican experiment proves anything. For one thing, what would a sugar levy actually look like on shelf? If, say, the full-sugar variety costs 5p per can more for a retailer to purchase compared with a zero version, would that automatically be reflected in the on-shelf prices, or would they just align at a common rrp but with different margins? Looking at the countries where taxes already exist doesn’t give us much of a clue, as in Mexico there is virtually no diet soft drink market, whereas in France a tax applies to all soft drinks, sugary or not (as it does here, in the form of VAT).
We also have parallels from our own experience. In the two categories where there is a ‘levy’ or excise duty applied as well as VAT – tobacco and alcohol – campaigners have been telling us that taxation alone is ineffective, and that other restrictions are needed. So a sugar tax is surely the wrong place to start. Better surely to focus on education and a commitment to act responsibly throughout the supply chain, from manufacturers, retailers and parents. And that goes for politicians, too.
It’s good to hear from the readers of C-Store that Halloween went well for the trade. While the autumn celebration has been observed for centuries, it is only in very recent years that it has become a sales event for the retail industry.
Manufacturers have cottoned on quickly as well, with special flavours, colours and pack formats brought in just for a single day’s enjoyment. Millions of pumpkins are sold across the UK (seriously now, how many do you sell during the rest of the year?) and millions of children acquire a huge bonus haul of sweets through trick or treating.
But what is coming through particularly strongly this year is the sense of fun that Halloween brings, to individual stores and to communities as a whole. A small shop might not have the space to display a huge range of fright night paraphernalia, but it does have the opportunity to look a little different and act a little different for a week or so with props, window graphics or through staff dressing up.
This sense of being part of local life is hugely important for neighbourhood stores, and helps to sustain the impression that, for the local community, it’s not your shop but their shop. This in turn builds loyalty and good feeling, which are commodities that should yield sales not just on one night but for many more days and nights to come. For, as we all know, anything that makes the customer linger in store or leave a little happier is a surprise worth having.
With the MPs returning to Westminster this week, political life in the UK will restart in earnest. The new government has set out much of its agenda for the first couple of years, and this includes new legislation (for England and Wales) to devolve Sunday trading regulation to local authorities.
Needless to say, this could have a huge effect on thousands of small store retail businesses, as well as the general balance between high street and out-of-town shopping areas.
The slim evidence available so far indicates that the public are not hugely bothered about changes to the current regime. However, the fact remains that Sunday trading is on the political agenda, and once the official consultation concludes later this month MPs will most likely have an opportunity to vote on proposals that will shape the Sunday trading regime for years to come. So it’s to MPs that the fight must be taken.
Conservative MP David Burrowes has said he is against Sunday changes, and he won’t be the only one. After all, the Conservative government has only a slim majority and won’t want an early Commons defeat, so will be sensitive to any reservations that backbenchers have. So if you think that a liberalisation of Sunday trading in your area will adversely affect either your business or the community at large, let your MPs know. They might be more sympathetic than you think.
The dust has settled a bit on Booker’s proposed acquisition of Musgrave GB which, assuming it is approved, will have a huge and lasting impact on convenience retailing in the UK.
The immediate benefit will be felt by symbol group retailers, where Premier operators should get better fresh and chilled, Londis retailers should get better prices, and Budgens retailers should get more entrepreneurial flexibility.
So, on the face of it, it’s a massive win-win-win for retailers, but it might take a while before the desired outcomes can be fully realised. Booker’s recent success has been based on simplicity and lean management, so let’s not underestimate the challenges that the organisation faces in taking over a complex and people-heavy pair of symbol groups.
There are a couple of other nagging issues that need solving as well. The Budgens company-owned stores will have to be disposed of somehow, and with 4,900 symbol retailers being served by Booker there will be some issues of proximity, although industry insiders suggest there might only be as few as 70 locations where this could be an issue.
In any case, the positives heavily outweigh the negatives. A profitable supply partner has to be a more sustainable basis for businesses to grow than one surrounded in anxiety and doubt. Indeed, convenience is in boom, but at present many of its symbol group practitioners are falling short of targets, or even basic profitability. Only consolidation can solve this, and the process has begun.
Congratulations to the team at Scotmid, and particularly those at the store in Stockbridge, Edinburgh, for being named Convenience Retailer of the Year at the Convenience Retail Awards last week.
It’s a triumph worth celebrating for a number of reasons, but the most impressive thing about the Stockbridge store is that it is the culmination of a three-year project to devise premium quality, but locally-grounded c-stores for today’s shoppers.
Fresh and local foods have pride of place as you walk in, particularly the bakery section which makes a feature of delicious goods from award-winning local bakers. But as well as having an attractive design and an upmarket feel, there is also value, innovation and top-notch customer service to drive shopper loyalty. In retail, there is always a difficult balance to find between discipline and imagination, but our champion store gets it absolutely right.
The industry is ultra-competitive, and the judging for the awards was, too, but everyone is impressed by what Scotmid has delivered at Stockbridge and at its other black fascia stores in and around Edinburgh.
The success of the project shows that, where there are competitors all around, you can take the brave route and go upmarket to a premium model to establish your point of difference. And being famous for fresh and local foods is a very strong position for any local convenience store to be in.
Are you an independent retailer? Have you ever considered running a franchised store? For some people, these two questions are mutually exclusive. For them, running a franchise means giving up your independence to a larger corporate entity. In the case of One Stop, this entity is Tesco, which makes it even worse. But not everybody thinks that way, and the tide is definitely turning in favour of the franchise way of doing things.
It’s worth saying that franchises have been around for a long time already (actually, they have a less-than-glorious history in the UK c-store industry, but that is arguably down to the specific business models rather than the concept as a whole). In Europe and America, many of the small store variants of the large chains are run as franchises by independents, and in the foodservice sector there are so many that it is almost the norm. For the likes of Starbucks, Costa, McDonald’s and Subway, more than half of the outlets are operated by partner companies rather than being company-owned, and they simply would not be the size they are now without a franchisee system.
In UK convenience, the art of retailing has traditionally centred around buying well, and most symbol groups have developed out of a form of loyalty scheme for wholesalers. This has served the industry well, but arguably more is needed today.
With so much competition around, a good range is no longer enough: it needs to be perfect with not a SKU wasted. Ordering needs to be slick, stockholding needs to be efficient, and operational tasks need to be structured so that gaps are filled and temperatures checked on a systematic basis.
All of these things are within the reach of a symbol group, of course, but so far this is where franchising is winning. Making money is part of it, of course, but among the new franchisees that I have spoken to, it is not the main benefit. For them, the key satisfaction is the kind of comfort they receive from knowing they have the backing of a larger retail organisation who will iron out any potential mistakes. Because for all of the brilliant and innovative independent retailers that we have in this country, there are still many others who are making mistakes that the multiples and the discounters will continue to punish.
Freedom is a wonderful thing, and the spirit of entrepreneurialism is an unbeatable source of satisfaction for those who make a success out of it. But absolute freedom also gives you the opportunity to get it absolutely wrong, and as an industry we cannot get away with it any more.
Everyone is excited about local. There is a huge level of interest in the idea of independent businesses employing local people and providing a genuine point of difference in an increasingly clone-town nation. Yet when a multiple retailer arrives and says they want to open a store, it still seems that most council planning departments welcome them with open arms.
The most recent example is in Edinburgh, where Premier retailers Dennis and Linda Williams have fought a long and energetic campaign to make sure the council knows what locals actually want to do with the land – and that is more housing. Yet despite the support of MPs, MSPs and 400 local objections, Aldi have been given the go-ahead for a new store.
Of course, evaluating local preferences can be tricky – in some parts of the country there were protests when Tesco said they were moving in several years ago, only to be followed by a separate set of protests when the retailer said it was pulling out. And when all the market data points to the fact that shoppers are switching from big superstores to the German discounters, it is difficult to say that any town should be closed to new developments.
But in the case of Dennis and Linda’s campaign, it is clear the community and elected officials thought the land should be used for affordable housing.
David Cameron’s government was supposed to be about localism. But somebody needs to tell the planners, because the message isn’t getting through.
Things move quickly in retail, and it’ll be April before we know it. This has particular significance this year because the tobacco display ban will become a reality for every c-store on 6 April.
Finding a solution for this is an urgent priority for the trade. For one thing, the penalties for non-compliance are steep: a fine of up to £5,000 and even six months in jail. But it needs to be an urgent business priority, too, as it’s not just the visual presentation that needs to be prepared – your staff and customers need to be ready too.
We know already from large stores in the UK and other countries where the display ban is in place that the simple act of putting a cover over the existing gantry is enough to confuse and irritate some customers.
Many will not know that the law has changed, and will think you have made a personal choice to alienate them. Service times will be slower and staff will be under more pressure than usual. And you will no longer be able to see the gantry either, so gap checks need to be done more methodically and more regularly to make sure you stay in stock, as shoppers wont thank you for being made to queue up, only to be told their chosen brand is out of stock.
When it comes to the gantry itself, some are lucky enough to have a tobacco company solution, while others will have to install something of their own devising, and most of this will happen just in advance of the 6 April deadline. But for the world outside the gantry, the prep work needs to start straight away.
As I write this it’s pouring with rain and I spent most of yesterday driving through the remnants of an Atlantic hurricane, but that doesn’t alter the fact that, by British standards, this has been a pretty good summer.
And I’m not just talking about the weather. Independents speaking to C-Store over the past couple of weeks have reported nothing but good news about sales.
It’s more proof that the convenience format is resilient and increasingly popular with consumers. Of course, this hasn’t gone unnoticed by multiple retailers, who continue to push ahead with plans for smaller format stores, but such is the dynamism in the market that in net terms value sales in the market are growing ahead of store openings (5.2% up in value terms, and 1.3% up in volume terms). This is very different picture to the supermarket and superstore sector, where like-for-like sales are flat or down.
The rewards come at a cost, however, as increasing choice in the market means that consumers are able to exercise ever-increasing demands for quality and value. So in order to be a player you need to be investing in equipment, product range and in-store environment to meet shoppers’ needs for fresh and chilled food, product availability and service.
It’s not an easy jump to make, but the pages of this magazine are full of retailers who have done it, and who are reaping the rewards.
One month on from the end of Costcutter’s distribution link with Nisa, what have we learned?
The picture is mixed, but one way to look at it is to balance performance against expectations. Bearing in mind the scale and complexity of the changeover, only the most optimistic of people would have expected the P&H/BuyCo system to work like clockwork straight away. But as I write this, many retailers have been operating under the new set-up for much longer than a month, and are still a long way away from receiving the service they were promised, and have every right to expect.
Amongst the retailers I have spoken to or who have left a message on our website message boards, there is not one who is currently getting what would in any other circumstances be called an acceptable service level. But this patience cannot be considered limitless. In retailing as a whole, and particularly in convenience retailing, availability isn’t just the most important thing, it is everything. The best pricing, service and community focus in the world cannot sell a customer an empty shelf. So amongst all the promises about better prices, more transparency, and a customer-determined range, there should perhaps have been a higher priority set on getting the basics (the top 500 lines perhaps?) into every delivery and every store. To miss this should not be seen as acceptable.
The dream scenario for independent retailing is about being the master of your own destiny, while at the same time being able to fall back on the support of an efficient and understanding marketing, buying and supplying network. This remains a possible outcome of the Costcutter/BuyCo/P&H set-up, but even after a month there is still an awful lot to prove.
One of the more interesting dynamics in the convenience sector in recent years has been how independent operators have adapted their ranges to offer a point of difference to the multiples and to provide a compelling offer to local shoppers.
Central to this has been products from small, local and regional suppliers. What started off several years ago as a small selection of cakes and chutneys has, in many stores, grown into an array of butcher’s meats, premium pies, sauces and locally-grown fruit & veg.
It sounds expensive, and in some ways it is. Prices are higher, suppliers are not necessarily consistent in packaging, labelling and availability, and wastage – as with all fresh product – is an issue. But such has been their success that independents should be asking whether they can afford not to stock them.
The recession has undoubtedly hit shoppers, but good quality food has never been so popular (as a thousand TV programmes demonstrate). And don’t underestimate the ongoing impact of the horsemeat scandal, either, with every food label now scrutinised.
Independent retailers are getting better at knowing what to ask for when sourcing products, too, and many great stores have built their success on strong relationships with suppliers. And for what it’s worth, here’s one more piece of advice: trust your staff.
We’ve just completed the judging for this year’s Sales Assistant of the Year competition, which was an absolute pleasure as always. It’s noticeable just how many of the sales assistants who entered are making a huge contribution to their businesses by being trusted to build relationships with local suppliers. It’s paying off for all concerned.
Among all the structural and competitive changes occurring in the grocery marketplace, click and collect has barely registered as a threat to c-stores.
Other competitive pressures have been a lot more visible. First, the incursion of multiple grocers’ smaller formats into c-store territory, then similar expansion from discount retail chains, and not forgetting the massive growth of retail sales generated via the internet, which is manifested by corporate delivery vehicles reaching estates, homes and even campsites where even the supermarket giants would not build a store.
I’m interested by Asda’s latest trading statement which reiterated its position that it would not open c-stores that charged higher prices than could be found elsewhere in its estate (obviously a dig at its competitors). The same statement said that click and collect would be their main method of reaching shoppers who have been, up to now, reluctant to spend time or money in their superstores.
In my view, it’s a threat worth taking as seriously as the other three outlined above, as it combines elements of all of them: time-saving, easy to make price comparisons, while still allowing shoppers to take personal charge of their shopping and pick it up at time that suits them.
Asda will trialling same-day ordering and collection at its Wakefield store, meaning that the whole system is ideal for top-up shopping of daily basics. This is a market that c-stores used to exel at, but have been losing share in recent times, so we as an industry need to be working even harder to make our fresh, chilled and daily top-up offer as compelling as possible.