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Tesco faces squeeze as rivals target Scots

By Ian Fraser

Published: The Sunday Times

Date: August 9th, 2009

Sainsbury's store; image courtesy of Daily Mail

Supermarket’s 31% share of grocery market under threat as Sainsbury leads expansion

TESCO’s grip on Scotland’s grocery market will come under intense pressure in coming months as rival supermarkets – including Asda, Sainsbury, Wm Morrison and to a lesser extent Waitrose – step up their expansion and store opening programmes North of the border.

Having acquired Dundee-Based William Low in 1993, which brought it 57 superstores, Tesco today controls more than 31% of Scotland’s £10bn a year grocery market, and in some major cities such as Inverness, the food retailer has a near monopoly.

However rival supermarkets are determined to challenge this dominance, and have been taking advantage of bombed-out property prices and in some cases, public hostility to Tesco’s dominance, to acquire new sites and ratchet up Scottish growth.

Sainsbury today announced it intends to create in 1,300 jobs in Scotland by summer 2010 through an accelerated store opening programme that will also see the expansion of some of its existing outlets. The London-based group said it will open an enlarged 70,000 sq ft Braehead store in November, and that new stores in Strathaven, South Lanarkshire and Prestwick, Ayrshire will open within the next 12 months.

Asda recently unveiled plans for a £260m Scottish expansion programme between 2009 and 2012. The Wal-Mart subsidiary said this would create 3,500 jobs. Asda, Scotland’s number two chain with a 22% market share, also plans to loosen Tesco’s grip on the Inverness market by opening a store at Slackbuie next year.

Asda has a dedicated Scottish retail development team that is “continually looking for new store development opportunities throughout Scotland” and its chief operating officer, Andy Clarke recently highlighted the benefits of the supermarket opening programmes for the local construction sector.

Bradford-based Wm Morrison, which gained 50 stores in Scotland through its £3bn acquisition of larger rival Safeway in 2004, is described as “desperate” to enlarge its Scottish footprint where it currently has a market share of about 12% to 13%.

Morrisons led by chief executive Marc Bolland, believes that a focus on its “market street” concept, based on fresh produce, will help it to seize share from Tesco, Sainsbury’s and the Co-op.

The latest battle in the supermarket wars comes as supermarkets retain the support of City investors, where they are viewed as defensive stocks, and outperform other retailers. The recession is causing consumers to eat out less and trade down to cheaper budget ranges.

Sainsbury’s, 27%-owned by the Qatar Investment Authority, was a latecomer to the Scottish market. The group opened its first standalone store North of the border in Darnley in 1992, having opened Savacentre, a joint venture with BhS in Edinburgh’s Cameron Toll in 1984.

Leigh Sparks, professor of retail studies at Stirling University, said Sainsbury has been playing catch up in the Scottish market since losing the bidding war for William Low. “Sainsbury’s are having to build a network of sites from scratch, making it much harder to get that critical mass of stores,” said Sparks.

Sainsbury said it will also expand existing outlets in Darnley, Hamilton and Leven and convert the six Scottish stores its acquired from Somerfield in May to Sainsbury’s. Theses stores are in Newton Stewart, Muirend (Glasgow), Stewarton, Denny, Kinross and Selkirk.

Sainsbury has defied expectations that its position in the middle of the market would cause it problems, by taking custom from upmarket rivals including Marks & Spencer and holding onto more budget-focused shoppers. Nick Bubb, retail analyst at Pali International, said: “Sainsbury’s own-label range and marketing edge have turned out to be great strengths, enabling it to attract shoppers looking to save money but also retain quality.”

In May Tesco’s Scots-born chairman David Reid said that, despite its grip on the market, Tesco also intends to expand its supermarket empire in Scotland and would hire more staff for its financial services operation in Edinburgh.

It is opening a new store in Bellshill, near Glasgow, and is pushing ahead with plans for a retail and residential complex, dubbed “Tesco Town”, in Partick in Glasgow’s west end despite fierce opposition from local residents and merchants who fear it will put them out of business.

On a recent visit to Scotland, Reid conceded that Tesco is often criticised for being too big and powerful but insisted that most Scots “are happy” to have a new Tesco supermarket in their area.

An edited version of this article was published on page two of the business section of The Sunday Times Scotland on August 9th 2009

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