After a couple of sleepy years, dealmaking is certainly back with a vengeance in the retail sector. Last year saw considerable levels of uncertainty and upheaval, the year’s news being largely dominated by mergers and acquisitions. Tesco and the Co-operative Group both made successful bids, with the former boasting 1,265 new stores opened in 2002/2003 largely through acquisition (it has another 59 planned for this year). Baroness Retail was equally successful in taking over Debenhams in November. Sainsbury’s, however, didn’t quite make it with some Somerfield stores and, of course, the issue of the Safeway acquisition continues to evolve today.
Retailers and analysts alike eagerly awaited the findings of the Competition Commission in October, which unsurprisingly gave none but northern chain Morrisons the go-ahead to bid for Safeway. This year is likely to witness close attention paid to the way in which Morrisons deals with the rather daunting process of integration. Not only does it face cultural and geographical issues, but it also needs to make a smooth transition in acquiring Safeway’s stores — essentially minimising any negative effects upon its existing retail presence and its success.
History has taught us retail mergers are tough to pull off, yet with any luck the changes over the coming year will bring a fairer and better deal for all parties — retailers, shareholders, and customers alike. More choice, competitive prices, efficient supply chain management and superior technology will hopefully characterise a changing but improving retail landscape for us all.
Further evidence of competitive activity among the nation’s top supermarkets last year saw the adoption and/or development of various technology solutions. Tesco in the UK and Wal-Mart in the US have already carried out pilot schemes of RFID technology, and these are likely to be repeated, if not adopted formally, this year. This is likely to further deliver the technology into the public eye. While a senate hearing in California may lead to US legislation due to concern over privacy issues, the core intended uses of RFID within the supply chain rather than post-transaction will be further explored and developed — and truly tangible results may then appear.
Before payment card fraud liability shifts to retailers, chip and PIN technology needs to be implemented by 1 January 2005, a switch that might not prove so easy for smaller retailers who face considerable costs due to the lengthy accreditation process with the banking community. During a trial of self-checkout tills in a Somerfield store in Manchester, 75% of that day’s sales were facilitated by those tills, so this might also be one to watch over the coming months, following in the footsteps of US retailers where it is common practice.
Key questions for the industry in 2004 might be the following: Who will get the 52 surplus stores that Morrisons has to divest? Who will be the next to fall after the Christmas trading results? And will there be a new overseas player entering the UK market? If we were to experience a slow-down in consumer spending and confidence — this may hurt the high street, yet may also benefit one-stop stores which offer foods and non-foods all under one roof at competitive prices — those championing this area may draw considerable strength rather than make losses. Tesco is truly steaming ahead of the competition with its ever-expanding non-food offering — apparently some 30,000 pairs of Tesco’s value jeans priced at £4 are sold every week, and its share price continues to soar.
Ever more it seems that retailers are playing a wider role within society, acting as a responsible and responsive sector in accordance with the needs and wants of a diverse and often demanding society. The increased concern for UK obesity has prompted the government to ask supermarkets to lead a junk food crackdown by providing more detailed nutritional information on food and drink packaging. Throughout all of the potential developments facing the industry this year, the customer most certainly forms the connecting thread. All retailers must continually develop and differentiate themselves in terms of service, and set themselves apart in a competitive industry driven by few differentiators. If supermarkets are to succeed financially, and culturally, the customer must be wholly satisfied — after all, they are always right.
