U.K. GROCERS SEE BIG BOOST IN NONFOOD

DAN ALAIMO

LONDON - Nonfood sales, notably of apparel and entertainment software, have nearly doubled over the past five years for supermarkets in the United Kingdom, according to data from TNS Worldpanel here.

These nonfood sales rose 94% compared to the overall market growth of 11%, TNS said. Of entertainment products, 26.8% of all CDs and 27.4% of all DVDs are now purchased in supermarkets, compared to 15.2% and 12% five years ago, while 19% of all clothing and footwear is bought in food stores, up from 11% in 2000. The data are from the 52 weeks ending Jan. 8 and the corresponding periods for prior years.

Of U.K. consumers purchasing clothing or footwear last year, 58% did so in a supermarket, while 28.7% purchased DVDs, 25.9% bought CDs, and 20.3% obtained books in the food stores, TNS reported. This results from the emphasis chains like Tesco, Cheshunt; Wal-Mart-owned Asda Group, Leeds; and J Sainsbury, London, put on nonfood, sources said.

"The supermarkets have devoted more space to their ranges in these areas, and they have also increased the number of extra-large stores they have; therefore more space can be given over to nonfood," said Lucy Burton, research manager, TNS.

The continued success of U.K. supermarkets in nonfood raises the question of why their U.S. counterparts can't do the same. While some chains, like Kroger Co., Cincinnati, with its Marketplace format, and H.E. Butt Grocery Co., San Antonio, with its H-E-B Plus stores, appear to be headed in this direction, sources pointed out one significant difference between the countries: Mass merchants' discount department stores never took root in England.

"The U.K. does not have the same penetration of mass discount chains - Wal-Mart, Target, Kmart - as here in the U.S.," said Neil Stern, partner, McMillan/Doolittle, Chicago. "That format doesn't exist." As a result, competition here is "much more intense," he said.

"Clearly the consumer isn't averse to buying their food and general merchandise in the same format - 2,000 supercenters later, I think Wal-Mart has proved that. So I don't think it is impossible for supermarkets to get [those sales], but they are probably going to have to innovate from the format standpoint," Stern said, pointing to the new big Kroger and H-E-B stores as examples.

"The U.K. supermarkets have made these nonfood lines very successful by strong promotion on convenience and cost effectiveness," said Fiona Bell, research director, TNS. "It is now quite normal for consumers to visit supermarkets to purchase clothing and entertainment products, as well as groceries. U.S. supermarkets may find that similar promotion to consumers will bring about the same trends."

While price competitive, the U.K. chains have not been going after the low end of the market, at least not in apparel, a source told SN. The clothing and footwear sold by these retailers is on a par with some of the mid-priced offerings found in Kohl's and Target stores in the U.S., he said.

Competition at all price levels of apparel, electronics and books is very well developed in the U.K., the source said, although the supermarkets are taking advantage of these products to enhance a one-stop-shopping image.

"The U.K. supermarkets have had a strategy of imitating high fashion items from the catwalk, with a fast turnaround and low prices," TNS' Bell said. "This, combined with strong public relations and coverage in the fashion magazines, means that increasingly people are choosing to 'mix and match' supermarket garments with more expensive items."

The success of Kroger and H-E-B with larger stores offering a wider variety of nonfood items indicates that U.S. supermarkets can increase general merchandise sales, said Jim Hertel, senior vice president of consulting firm Willard Bishop, Barrington, Ill. "In some ways it's a reverse engineering of the supercenter," which grew out of the mass merchants' stores, he said.

"Now you've got traditional food retailers who are adding other categories, and a lot of it is in soft lines, home furnishings and other categories. But they are doing it in a way that is not directly competitive with the supercenter. In the case of Kroger Marketplace, it is definitely more upscale," Hertel said.

As to whether others will follow, he said, "some are capable and more will be interested."

Rather than competing in categories like apparel and entertainment software where the mass merchants and specialty discounters are already strong, Robert Gorland, vice president, Matthew P. Casey & Associates, Clark, N.J., suggested that they go after more seasonal items and home goods.