LONDON (FNS) -- The food retailing battleground in the United Kingdom has moved to center city.
Opening new center-city stores, which emphasize fresh and convenience foods in a small-store setting, is part of the continuing drive on the part of British food retailers to discover new avenues of growth. The out-of-town superstore format, a growth vehicle in the 1980s, has
come under increasing pressure as local governments tighten planning rules and discounters and warehouse clubs step up price competition.
The center-city stores, which average 10,000 to 15,000 square feet, represent a return to an area leading retailers had largely abandoned during their push to build superstores.
Industry executives note that the center-city store is back in vogue because the chains still have many sites below 20,000 square feet. Analysts said the move also stems from the chains' improved logistical systems, which enable them to efficiently distribute to smaller stores.
The first food retailer to make the move was Safeway, a subsidiary of Argyll Group, which developed its city format in 1989. Marks & Spencer's successful development of its food-retailing operations in city centers also spurred the format's growth.
Tesco, though, made the first major push into center city two years ago with its first Tesco Metro store in London. Tesco has seven Metro stores in major city locations, and another seven openings are planned over the next six to 12 months. The company estimates it can open up to 40 Metro stores.
Sir Ian MacLaurin, chairman of Tesco, said Metro represents one of the company's core growth formats.
"Research shows that a third of all consumer spending on food still takes place in the highstreet [center city]," the company said. "We believe there is enormous potential for this type of development."
The Metro stores, ranging from 9,000 to 12,000 square feet, feature top-of-the-line chilled and frozen foods, wines and spirits, newspapers, magazines and flowers. Metro stores stock about 5,000 items, compared with a typical superstore offering of up to 18,000 items. Most of the Metro offering is in fresh foods and the remainder is nonfood products.
Other chains are now following Tesco's lead, which sets the stage for a real-estate battle.
J. Sainsbury recently converted three of its existing stores in Chelmsford, Exeter and Epsom to its new Sainsbury Central format. The stores range in size from 12,700 to 18,000 square feet.
David Quarmby, joint managing director of Sainsbury, said the new format is being tried in stores that, up until four years ago, the chain would have closed in favor of larger superstores. Sainsbury now considers center-city locations an opportunity to increase sales.
"We already have the products to cater to that market, but we have not been organizing them in the correct way to do so," Quarmby said.
Sainsbury, however, has not set any time limit on its trial, nor has it announced any further openings of center-city stores.
The Sainsbury Central stores are divided into three areas aimed at different customer needs: a convenience-store area catering to nearby office workers, with sandwiches, desserts, salads, drinks and small portions of hot takeout food; a central area featuring prepared meals, dairy, frozen foods and perishables, and a back section with groceries and beverages. The stores also have a fresh meat counter and a delicatessen. About 55% of the products are Sainsbury's own label and the remainder are major brands.
Industry analysts said they expect Sainsbury to roll out more Sainsbury Central stores in coming years and perhaps begin to buy new sites for the format. (Sainsbury has about 340 stores, with almost half in center-city or edge-of-town locations. Of these, 51 are less than 15,000 square feet.)
Analysts said, however, that center-city retailing has limited potential. For one thing, the stores' heaviest traffic is during weekdays. They can be relatively empty in the evenings and on weekends.
"In scale terms, these center-city stores can't provide sufficient growth relative to what was achieved in the past with superstores," said Nick Bubb, a retail analyst at Morgan Stanley here.
Clive Vaughan, an analyst at the Verdict Research consulting group, said center-city stores have higher sales per square foot, but also are more expensive to buy and operate than locations out of town.
In addition to center-city stores, Bubb said U.K. retailers are studying other growth areas. Tesco, for example, is looking at freestanding gas stations and convenience stores under the Tesco Express format. Two such stores are planned for suburban London.
