This year’s Business Outlook from Christie + Co reveals a retail sector growing +11.3% in a commercial property market that is nearing pre-crash levels. We examine the trends in the convenience sector and look at where it leaves independent retailers.
by Kevin Scott
Each year property management and commercial estate agent Christie + Co takes a look at the commercial property market in Scotland. This report, called the Business Outlook, never fails to throw up some interesting numbers and news on the retail sector. This year is no different, with the top line looking at the growth of convenience.
As we’ve discussed on these pages before, when many companies indirectly involved in the grocery industry talk about convenience, they are referring to multiple convenience outlets in addition to independents and symbol stores. And as we’ve also discussed on these pages before, the growth of multiple convenience may be causing competition for local retailers, but the fact that consumers are adapting their shopping habits to this ‘little and often’ trend, means that they are more likely to shop locally, if the offer and shopping environment are right.
Looking to the Business Outlook and Chairman David Rugg was happy to report that there has been a recovery in average prices of commercial property. It’s more than that in fact. He says that we are almost half way back up the curve (the curve that shows a 28.5% decline in the market between its peak in 2007 and 2012), “en route to the peak price levels we saw seven years ago”.
Moving onto the retail market specifically and four aspects are highlighted by the firm as it reports an 11.3% increase in price movement – Consumers choosing convenience, Supermarket chains downsizing and diversifying, activity in the off-licence channel and an increase in forecourt numbers.
We’ll go through these in more detail in a moment, but first, a word from Head of Retail, Steve Rodell. “The growth of the convenience retail sector is underpinned by UK consumers’ increasing reliance on local stores to pick-up essential groceries. The majority of convenience stores are still in independent ownership, although multiple operators are increasing their market share. The forecourt market structure is also changing, as oil companies dispose of their retail businesses and independent groups welcome the opportunity to step in.”
The report discusses the changing shopping habits of consumers, and how this trend for convenience is creating opportunity. It says that while multiple operators are increasing their market share, suitable acquisition opportunities are limited and the convenience sector continues to be dominated by small business owners who are willing to take smaller sites. Christie + Co transacted a large number of individual unit sales last year, an increase of 11% compared to 2013, with a high proportion of first time buyers relative to other sectors.
We couldn’t discuss the overall market without looking at Aldi and Lidl, and the report says that the German discounters are aware of consumers’ tendency to shop locally and are trialling convenience store formats in key locations. This is a potentially hazardous development for the independent sector, as the large discounter formats are causing enough headaches without convenience-sized stores popping up.
The report says that online grocery sales are also crucial and the supermarkets are trying to persuade customers to click-and-collect, which drives site footfall and yields higher margins than home delivery.
The forecourt sector had a good year, with a net increase in sites for the first time in almost 50 years. That in itself is some achievement.
“The forecourt sector had a very good year overall – fuel prices were low, shop sales were encouraging and supermarkets saw a slight reduction in fuel volumes against an increase in the dealer network – further reflecting the supermarkets’ challenge to maintain custom,” says the report.
It also noted a few portfolio deals that prompted changes in the ownership structure of the industry – as large independent operators benefited from oil company sell-offs. It noted the move of Murco into dealer hands as an example of this.
So all in all, this year’s report card is the sort that retailers should be happy about. Yes, competition is evolving, but it is evolving into a convenience model – providing independents with a great platform to grow sales, and to do so in property that is growing in value.