A WARNING of difficult times ahead in the food retailing sector has been given by a top Co-operative Group executive.
Speaking at a Congress 2003 workshop session chaired by Chief Executive Martin Beaumont, John Bowes, Chief General Manager of the Group's food retail operation told his audience that the Movement's chosen battleground – convenience stores – is about to become the world's most competitive market place.
Mr Bowes said the UK c-store market is forecast to grow to £ 26 billion by 2006 and predicted that further consolidation is inevitable. He warned that the imminent sale of the Safeway chain of supermarkets will accelerate the trend and predicted that the big four food retailers could become the big three or even the big two within a few years.
This would increase the pressure on the weaker players, who would find their margins hit at both the retail and cost ends as suppliers were squeezed by the big operators.
Said Mr Bowes: "There are implications for the Movement whoever wins the battle to acquire Safeway. When a takeover is completed, we can expect to face a more productive competitor.
"But the upside for us is that there may be the opportunity for more acquisitions. Asda or Morrisons in particular could be expected to dispose of many of Safeway's smaller stores."
Another factor in the wake of a Safeway deal will be the independents, who will either seek bigger partners or may decide to sell, said Mr Bowes, who added that the almost inevitable break up of Somerfield – followed possibly by Iceland – would also present both threats and opportunities for the Movement.
Again there would be the possibility of acquisitions, though Tesco, too, will be taking a close interest in developments as the market leaders aim to build up their portfolio of Tesco Express c-store outlets.
"The current situation makes acquisitions more of a priority for the Co-op and we have to perpetually look at improving our offer if we want to stay ahead of the game," said Mr Bowes. "We need to consolidate improvements to the brand; progress the true dividend initiative; complete the refurbishment process and accelerate our responsible retailing programme.
"We've made great strides since the low point of early 1997 when Regan launched his predatory takeover bid. The media at the time exposed our business weaknesses and portrayed us a dinosaurs running a Victorian-style business.
"Now, in the wake of the 1997 review, our financial performance has been transformed and our market share is increasing every week, but we would like to go faster and further, so there is still a lot of work to be done."
Echoing his sentiments, meeting chairman Martin Beaumont said there were huge challenges ahead.
He commented: "Food retailing is by far our largest business and it's one we have to be successful in. Improving our offer is absolutely critical – we've got to become a better competitor."
*See this week's Co-op News for full coverage of Congress 2003.