Convenience stores turn the corner

Artisan products and a personal touch are helping small shops fight back as big supermarket chains attempt to take over UK high streets

 A basket of greengages, pots of local honey and stacked boxes of granola sit next to Cretan sun-dried tomatoes and something rather less delicious-looking – packets of dried crickets and mealworms. It’s too much for two young students surveying the display for an affordable and tasty lunch at the Eat 17 Spar in Hackney, east London.

Many people would be equally surprised to find such a range in a corner shop, but it could be a taste of things to come. Local entrepreneurs are stepping up their fight against the encroachment of Tesco, Sainsbury’s, Waitrose and M&S into a market once dominated by independents, and creativity is one of their best weapons.

As major chains have seen sales in large supermarkets slide, they have turned their sights on corner shops. Sainsbury’s and Tesco are each opening 100 small high street stores a year. Waitrose is opening 10. Tesco’s expansion has over the past few years included signing up 100 independent retailers as One Stop franchisees. Even Asda, which had shied away from small stores, is experimenting with petrol station forecourts – it recently bought a chain of 15 and wants 100 within the next five years.

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 Tesco now has 2,000 convenience stores. Photograph: Alamy

The convenience-store market is expected to increase by 17% to £44bn over the next five years, according to industry association IGD. But every customer is being closely fought for.

Analysts at Bernstein Research estimate that sales at chains such as Tesco Metro, Sainsbury’s Local and Little Waitrose rose 16% last year, far beyond the 2.3% they estimate for those within groups such as Spar or Londis, which give independent stores buying and marketing benefits. Unaffiliated independents have done even worse, seeing sales slip by 0.1%.

The onslaught spelled the end for more than 2,300 unaffiliated independent food shops over the past five years, according to IGD. About 1,500 of them joined a symbol group, with Best-One, Premier and Costcutter welcoming hundreds of new members. The remainder just disappeared.

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 Debbie Robinson says it’s tough out there, but Spar members are fighting back. Photograph: Martin Godwin

“It’s tough out there, really tough,” said Debbie Robinson, UK managing director of the Spar symbol group. She added that increases to the minimum wage as part of the Living Wage campaign will cost Spar members tens of millions of pounds, and could push more small stores over the edge.

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Even big groups are finding it hard to grab a slice of the convenience store boom. Morrisons looks set to sell off the remainder of its M Local chain, just two and a half years after its belated attempt to dive into convenience stores by snapping up some rather poorly located former Blockbuster sites. Convenience store and newsagent business McColl’s has struggled to increase sales since it floated last year and its shares have fallen more than 20%. Even Tesco, which has more than 2,000 convenience stores in total, closed 18 earlier this year as part of a bigger retrenchment programme.

In such a cutthroat environment, independents need all the creative spirit they can muster.

At Hackney’s Eat 17 – the second in a chain started in Walthamstow ( postcode E17) – shoppers can opt for a Spar-brand sandwich for about £1.80, or join tables full of chatty diners sipping artisan coffee or lunching on buttermilk chicken burgers. If they’re visiting someone at nearby Homerton hospital, they could pick up some flowers at the Rebel Rebel florist wedged into a space by the door. They might choose some craft beer, or refill a wine bottle from the barrel. They might return in the evening for a cocktail or dinner at the spacious restaurant upstairs. Housed in a former cinema, it’s all very east London hipster, but that’s exactly the kind of customer it wants.

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 Eat17 Hackney is in a former cinema

Spar members elsewhere in the country are behind the thriving Cheeky Coffee Co in Manchester, and a petrol station in West Malling, Kent, that stocks fresh produce from around 60 local suppliers and has an in-store butcher. In Gloucestershire, the Warner’s Budgens hosts a touring fishmonger at its stores and offers home delivery.

“Entrepreneurial independents will always have the edge because they bring something new and exciting to the consumer, and that’s difficult to achieve in a big business,” said Robinson as she tucked into a piece of deep-fried broccoli in Eat 17. “Customers want value but also something local and meaningful.”

She added that independents have been ahead of the game in cashing in on the popularity of takeaway food, bringing that into their stores along with coffee machines, their own cafes or joint ventures with coffee chains.

Small local shops cannot continue to rely on tobacco, newspapers and confectionery – they need to get into fresh food and quality ready meals, and keep an eye on the latest food trends. Spar, for example, now sells own-label microwavable pulled pork and its own prosecco and is developing a luxury version of its popular fresh pizzas.

James Lowman, chief executive of the Association of Convenience Stores. says group members have invested millions of pounds in refrigerators and new equipment in the past few months alone, aiming to cater for demanding shoppers.

Robinson thinks government should also harness the power of such entrepreneurs to tackle “food deserts” – areas where large chains cannot make the economics of opening a store stack up and pubs, cafes and post offices are closing.

Lowman says it is not much of a leap to envisage pubs or convenience stores widening their role. “A separate pub, convenience store and post office may not be possible any more in some places. Many areas once used to have a butcher, a bakery and grocery store, but that has been folded into one shop.”Such businesses could be seen as “social facilities” and offered incentives such as discounted business rates.

Meanwhile the big supermarket chains are facing increasing competition for sites. Lowman suggests they will now find it tougher to secure locations that will not draw customers away from their own larger stores.

Bruno Monteyne, analyst at Bernstein Research, agrees that independent stores may not find it so difficult to compete with multiple retailers. Bernstein research found that, with profits under pressure, large chains are using the relative lack of scrutiny at their small stores – which are not covered by comparison services such as Mysupermarket.com – to push up prices. It found prices at Sainsbury’s Locals in central London on average 12% higher than in its supermarkets, and that Waitrose, Morrisons and Tesco prices were about 6% higher. (Sainsbury’s disputes Bernstein’s findings and says prices in its small stores are about 6% higher than in its supermarkets.)

It also found that some key items, such milk and cornflakes, were more expensive in independent stores, but this was not the case across the board. A can of Coca-Cola or bottle of Fairy Liquid, for example, were both cheaper in a Costcutter and an independent than in major grocers’ convenience stores.

Lowman says some small independent stores can keep costs low by employing just a small number of family members. They may also own their premises, so are not subject to stiff rent rises.

Bryan Roberts, vice-president at data company Kantar, is optimistic: “It’s a great surprise to some people, but independent stores are going to be more enduring than they thought.”