Tesco Looks to Push Convenience Store Advantage

Sep 01, 2005

By George Anderson

Lee Scott, chairman and chief executive officer of Wal-Mart Stores, has pointed out that one advantage Tesco has over his company’s operations in the U.K. is its convenience store business. Now, it appears, Tesco is looking to increase that advantage with the purchase of up to 30 convenience stores with gas pumps from WM Morrison.

After the deal is completed and approved by Britain’s Office of Fair Trading, Tesco estimates it will have about a six percent share of the U.K. convenience store market.

“This is a small deal that will allow Tesco to convert freehold sites in good locations, with new and conforming forecourts and shops, to its Express convenience format,” the company said in a statement.

Mr. Scott, in an interview last week, appeared to signal that Asda may soon enter the convenience store segment in the near future.

“A lot of Tesco’s growth has come from the small convenience chain. Andy (Bond, the chief executive of Asda) and his team have got to look and see where the opportunity is for us with that kind of space,” he said.

Moderator’s Comment: Will more large chains in the U.S. not currently in the convenience store channel take a cue
from Tesco’s success in the U.K. and begin testing their own concepts? Which chains do you think would have the most to gain from entering the convenience store business?

George Anderson – Moderator

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6 Comments on "Tesco Looks to Push Convenience Store Advantage"

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Warren Thayer
16 years 8 months ago

Several major chains, such as Albertsons, are already doing this. It’s a no-brainer, especially if you consider the the recent study by Unilever on changing shopping habits of Americans, and how behavior on grocery store visits is becoming less and less “stock-up” and more and more like, well, a C-store. It’s a proven profit builder, and the channel can sure use that!

Bernice Hurst
16 years 8 months ago

There is more need/demand for C-stores in the UK than the US because we have far fewer accessible (note that important word) stores open all hours. We also have less choice in terms of which supermarkets to patronise. Those with easy parking are called Tesco, Asda, sometimes Sainsbury. Waitrose, which prefers town centre or edge of town locations often has to charge for parking because of local government regulations although they do refund it and we are only talking pennies. But for those basic items that you need to buy quickly at a time of your choosing, C-stores are, dare I say it, CONVENIENT. Their rapid expansion on garage forecourts proves the point in spite of the poor quality and high prices some of them boast (not to mention ATMs that charge you for accessing your own money).

Don Delzell
Don Delzell
16 years 8 months ago

This makes too much sense to be realistically true. Grocery operators have expertise in logistics and store operations. From an infrastructure point of view, aren’t these C locations simply another place to distribute product? Why wouldn’t the systems and structure already exist to do this right?

The normal margins for grocery chains are so thin, that running a C-store channel might almost be a culture shock.

Hey…veterans of grocery…why ISN’T this a no brainer for Albertsons, Kroger and Safeway? What am I missing?

Mark Lilien
16 years 8 months ago

The best profit model for US convenience stores are owner-operators, franchisees or independents. Major grocery chains need to focus on their core business, not venture into other distractions. Furthermore, I cannot imagine the P&L for a unionized convenience store chain.

John Weeks
John Weeks
16 years 8 months ago

The better food retailers need to take a serious look at convenience retailing. Consumer lifestyles and demographic trends continue to highlight convenience, time and value. Supers are not convenient and do little to save time.

Certainly one of the major reasons for the consolidation in the convenience store industry is the need to deliver better value to consumers, driven by cost reductions and volume leverage with suppliers. Since most major supermarket chains are already positioned to deliver on these needs, why not take the step and further utilize capital assets and distribution networks?

I can tell you for sure that the major drug chains are looking to be the C-stores of the future, with lots of parking, drive thru’s and plenty of floor space to deliver great customer experiences. Once they figure out how to integrate the fast casual restaurant concept into their format they will lead the changes in the definition of convenience.

Supers need to take heed and build strategies that meet customer expectations for now and through the next several decades.

Herb Sorensen, Ph.D.
16 years 8 months ago

Only the survivors will adopt this C-store strategy. We recently worked on a major supermarket where 17% of their shoppers buy only a single item, and another 13% bought two items. Nearly a third, then, are buying only one or two items.

We have seen this same pattern reproduced in store after store. To me, the only real question is whether they are going to run the C-store inside their existing stores, or move it to the parking lot and add gasoline.

My guess is that both strategies will ensue, as, just as with Starbucks operations, supermarkets will find that the C-store customers in the parking lot are a different group than those within the stores. The analogy with Starbucks isn’t perfect, but plausible and probably reflects reality to at least some extent.


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