Is this the end of the road for the hypermarket?

Author: Sue Spencer – Glenigan retail expert (@Sue_Glenigan)

With changing consumer attitudes, the rise of the discount brands and increasing demand for online shopping, the dominance of the large supermarket is looking increasingly unstable.

While premium retailer Waitrose and discounters Aldi and Lidl continue to make progress, the UK's ‘big four’ chains - Tesco, Sainsbury's, Morrisons and Asda - all saw their market shares drop in the final quarter of 2014.

As a result, Tesco recently confirmed it has scrapped plans to build 49 larger stores across the country, amounting to 1.8 million sq ft of floor space, and the retailer will cut its capital expenditure in half to £1 billion during 2015 and 2016.

Cancelled schemes included a store at Chatteris in Cambridgeshire (Glenigan Project ID: 09091482) where the shell works had already completed. In Armagh (Glenigan Project ID: 11225905) the developer is still continuing with the works despite Tesco withdrawing as the supermarket operator for the scheme. 

Some of these projects also included a residential element, such as the aborted plans in Dartford (Glenigan Project ID: 8426708), which included 107 flats, three non-food retail units and a community centre. A shelved project in Colchester (Glenigan Project ID: 06182062) was set to include a local centre with six retail units and 14 affordable homes.

Tesco has also announced it will be closing 43 existing stores that are unprofitable.

In November last year, Sainsbury’s announced it was cutting back on new developments, saying it will open 500,000 sq ft of new space in each of the next two years, a reduction from the 1 million sq ft previously planned for 2014/15.

The chain is set to build just eight new large supermarkets during the next three years, indicating that previous plans to build 40 stores have been scrapped.

Sainsbury’s has not yet disclosed which new stores will not be progressing.  It has threatened to pull out of a deal with Bristol Rovers (Glenigan Project ID: 11390042) which would see the football club move from the Memorial Stadium to a new purpose-built arena after agreeing to sell the ground to the supermarket chain. However the club is now looking to take Sainsbury’s to the High Court in a bid to force through the sale.

Another proposed store under threat is just down the road from Bristol in Cheddar (Glenigan Project ID: 12343891). This scheme has not progressed since planning permission was granted in May 2014. 

Morrison’s has also confirmed it has cut stores from its development pipeline and will be closing 10 premises across the UK which have been operating at a loss. 

One proposed store not progressing is the superstore which Morrison’s had agreed to lease in North Place, Cheltenham (Glenigan Project ID: 14020838). Work had already begun to dig up a car park in preparation for the new supermarket before the development ground to a halt. 

With the viability of large store formats fading, the big four have turned their attention to the convenience market. However, the bid to rush into this arena has backfired for some brands. Morrison’s has already scaled back its initial aggressive roll out plans for its M local chain amid weak sales. Tesco has also revealed that around half of the 43 loss-making stores it plans to close are Tesco Express convenience stores.

The consensus is that much of the capital expenditure by the big four will now be shifted towards refurbishment, right-sizing and repurposing space, rather than on major expansion of store numbers. One example of this is the recent announcement that Argos is to open 10 outlets in Sainsbury’s branches. The catalogue shop will test in-store outlets ranging in size from 1,000 sq ft to more than 5,000 sq ft - bigger than a typical standalone convenience store.

Despite these challenging market conditions, forecasts indicate that both Tesco and Sainsbury’s are still set to open 305 new stores each between 2015 and 2019, with around 100 each opening this year. Discounters Aldi and Lidl will open 190 and 185 stores respectively as part of their expansion drive in the UK.

The big four retailers are certainly facing a huge challenge to maintain market share, while managing their expansion plans and expenditure. However, with consumer spending on the rise, shoppers could very well turn away from the discounters and back to the more familiar brands. It is now up to the major retailers to ensure their estates strategy capitalises on the upturn, or risk losing out in the long term. 

For more information about retail construction, contact Sue Spencer at Glenigan on 0800 373 771.

Do you think we’re seeing a permanent shift away from large format supermarkets or will rising consumer spending signal its revival? Get involved with the debate on our social media channels using the share buttons below.

Kirsty Maclagan (Marketing and Communications Manager)