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Do retail 'experiences' represent the future for supermarkets?

It’s retail focus week on Bdaily. Some UK supermarkets now boast restaurants and other complementary retail offerings, and recently Asda and Barclays announced a tie­in, with the bank due to roll out mini­branches across some of the grocery giant’s bigger stores.

Joanna Norris, retail law specialist and partner at Ratio Law LLP, reviews the move towards USA­style shopping ’experiences’ within supermarket units, and considers the benefits the trend can deliver to both retailers and shoppers.

Prior to the recession, two of the UK’s biggest grocers; Asda and Tesco, seemed to pursue a purely ‘bigger is better’ strategy, creating huge out of town hypermarkets stocking everything – from clothes, to DIY tools, cookers, microwaves, toasters and laptops.

However recently these retail boxes seem to have gone out of fashion, and the high street mini­store seems to be the latest trend pursue by Tesco, Sainsbury’s and latterly, Morrisons with its ‘M Local’ concept.

But at the same time, is there also a sea change occurring at the existing hypermarkets?

Tesco reveals acquisition strategy, whilst Asda prefers strategic alignments

As briefly mentioned above, Asda and Barclays recently announced a pilot scheme for bank outlets to open in select Asda stores. Clearly, if the pilot is successful, there will be benefits for both retailer and bank – with Asda offering a wider range of services, and Barclays; increased accessibility for its customers.

Of course, both will benefit from the shared footfall. If the tie­in works, then both retailer and bank can shout about differentiation and improved customer service.

Interestingly, some of Asda’s larger stores already boast a McDonalds restaurant and it could be argued that this latest move is just about adding another layer of customer convenience – aimed ultimately at keeping customers in the store for longer than they would stay without the extra amenities, and hoping that they spend more whilst there.

Another benefit to Asda, of course, is the additional guaranteed income that will flow from rent.

Tesco has recently made a number of strategic acquisitions, and looks likely to be following a similar strategy to Asda; albeit by building an empire of different, but complementary, brands and pushing these out to the Tesco customers, rather than through strategic tie­ins.

For example, earlier this year, the retailer purchased restaurant group Giraffe for just under £49m and in 2012 invested in a new chain of coffee shops; Harris and Hoole, taking a minority share of up to 49%.

The retailer also rolled out a ‘shops within shops’ in­store innovation it calls ‘The Bakery Project’ in conjunction with London baking business Euphorium Bakery.

Tesco’s new look Watford store, unveiled in August 2013, reveals the extent of the grocer’s plans for the future, with the updated ‘Extra’ store featuring (as expected) an in­ house branch of Giraffe, a Harris and Hoole, a section for ‘The Bakery Project’ as well as a dedicated F&F section to showcase Tesco’s popular clothing brand.

Interestingly, there has been criticism of Tesco in some quarters around perceived lack of clarity regarding the giant’s investment in the coffee chain, with some consumers feeling they’d been led to believe it was an independent business.

Shoppers or retailers reaping the rewards?

The benefits for established businesses in moving in­store are clear; differentiation from the competition on the high street, increased presence at a space and time that is more convenient to their customers and also the potential to negotiate discounted rents if they commit to multiple stores.

And the same can be said for those business either owned by, or part­owned by Tesco. Ultimately the success of these businesses will generate additional income streams for Tesco, and perhaps its ongoing investment strategy also represents an element of insurance against falling profits in its core grocery business.

And for the likes of Harris and Hoole and Euphorium Bakery’s other owners, ultimately the support of a rich investor such as Tesco, with an eye on profit, vast retail expertise and a massive market share provides opportunities that could be difficult to secure without external investment.

Of course, these innovations are unlikely to do anything to support the ailing high streets, and there may be an argument that concentrating certain services within hypermarkets will actually make the situation worse. However, is it ultimately our supermarkets’ responsibility to help out high street retailers, or are we just experiencing the continuation of a major evolution of our shopping habits?

Ultimately, by doing something different to the competition, Asda and Tesco should be applauded. The litmus test will be whether the new in­store amenities are actually well utilised, and whether they can drive a profit for both the incumbent and the newcomer.

For customers, it will all come down to personal choice. Some will embrace the opportunity to avoid the high street, by visiting the bank, or stopping to enjoy a burger or a family meal whilst completing their weekly ‘big’ shop. Others will no doubt continue to prefer to enjoy independent retailers, coffee shops and restaurants on the high street, in conjunction with, or as an alternative to the supermarkets.

This was posted in Bdaily's Members' News section by Ratio Law LLP .