Supermarkets Could Start To Close, Warns Waitrose Boss

[Sancho Panza]

Telegraph 16/11/14

'Supermarkets in Britain could start to close as the grocery industry struggles to cope with an unprecedented slide in sales and profits, the head of Waitrose has warned.

Mark Price, the managing director of the upmarket grocer, said it was “incredibly hard to call” whether all of Britain’s food retailers would survive tumultuous shifts in shopping habits.

The “Big Four” supermarket groups have been forced to dramatically rein in plans to open new stores in UK in order to save cash to shore up their balance sheet. In recent weeks Tesco has scrapped two supermarket openings despite actually building the stores.

However, Mr Price warned that food retailers could be forced to go a step further and close existing stores, just as non-food retailers have done in Britain since the onset of recession.

He was speaking in the week that rival J Sainsbury slumped to a £290m pre-tax loss, scrapped plans to open new stores, and warned that sales in supermarkets will be falling “for the next few years”.

Mr Price said: “This is as fundamental as supermarkets coming into the UK in the 1950s and reinventing what food shopping was all about.

“I think we are at one of those inflection points where customers are acting differently and retailers are going to have to respond to it.”

In an interview with The Telegraph at a Waitrose in Salisbury, which has been revamped to respond to the shift in shopping habits, Mr Price compared the plight of supermarkets to the DIY retailers B&Q and Homebase, which recently announced it will close one in four stores.

Mr Price said: “Look at B&Q. Look at Homebase. I think that food is probably four or five years behind non-food. What you have seen over the last five years is 12pc of non-food space taken out of the market. You have had no food space retired over that period. In fact what you have been seeing is food space growing by 3pc to 5pc. So, more and more space has been added at a time before you get the impact of internet, convenience shopping and all the other shifts that we talked about.”

The Waitrose boss said that British supermarkets would have to reinvent themselves in order to survive a shift in spending from out-of-town stores to convenience shops, online and the discounters Aldi and Lidl. Mr Price said: “It [survival] depends what they become. It depends on your powers of reinvention really, because the model has changed. So you could say 'I am going to reinvent my shops so it is half a fashion retailer’. Through their various strategic reviews, they are going to have to decide what their space becomes.”'

[SarahBell]

Absolutely nothing to do with the massive increase in stores over the last 10 years?

The retail parks that sprung up around here meant you could have a choice of 3 B&Q all within a short drive.

Supermarkets - the first tesco in Manchester was years ago, now there's an Alid and others (No idea what it's called as I've only been to Manchester once or twice in the last 6 years) .. as well as at least one M&S food hall...

And all the time more coffee shops are opening up.
I imagine some people spend as much on coffee a week as we do on our weekly shop.

[durhamborn]

Perhaps Tesco and the others will start building new homes on their vast land banks.

Tesco owns less than half its land/stores.It leases them.Looking at its balance sheet i reckon around £12billion of debt is lease related.Future payments.I cant quite work out what the % is for Sainsbury.

Morrisons owns 90%+ of its stores freeholds.Tesco is in a very tricky position.Probably why its keeping very quiet on the price war position.If margins fall to 2-3% at Asda and Morrisons Tesco if matching would be bankrupt within a year unless it could offload a lot of those loss making long leases.

[Venger]

Overcapacity, saturated markets, over-expansion, huge competition, complacency with expansion to chase permanent growth (again.. as in runup to 2007) .... all chasing fewer pounds - or pounds some have decided to withhold.

Supermarkets should be anti high house prices for the young, anti jumbo mortgages, anti high rents.... fewer people around to spend decent money in their stores.

The consumer balked at attempts to stimulate aggregate demand via inflationary policy of negative real interest rates, and ever since, has been raising real interest rates by reducing inflation through lower aggregate demand. This is perhaps the most unappreciated yet significant market development since the financial crisis.

Mr Coupe said Sainsbury’s will lower prices by £150m and improve the quality of 3,000 products. This will be funded by cutting capital expenditure to between £500m and £550m in each of the next three years, compared to just below £900m at present, as well as a cut to the dividend and Sainsbury’s removing £500m of costs.

At least Wonderpup thinks people are justified happily loading up on debt in the here and now, it seems - with prices wars coming, structural upheavals, closures.

[tinker]

Tesco owns less than half its land/stores.It leases them.Looking at its balance sheet i reckon around £12billion of debt is lease related.Future payments.I cant quite work out what the % is for Sainsbury.

Morrisons owns 90%+ of its stores freeholds.Tesco is in a very tricky position.Probably why its keeping very quiet on the price war position.If margins fall to 2-3% at Asda and Morrisons Tesco if matching would be bankrupt within a year unless it could offload a lot of those loss making long leases.

+1

Good insights durhamborn

[MARTINX9]

At the Waitrose in St Katherines Dock in the City - used by a well off clientele - they have started requiring people to go to a separate till to get their paper cups to qualify for their free coffee as apparently people have been stealing free coffee and not showing their waitrose card first to get it.

If Waitrose are now worried about people stealing free coffee in the City of London - times must be tough!

[Habeas Domus]

Supermarkets should be anti high house prices for the young, anti jumbo mortgages, anti high rents.... fewer people around to spend decent money in their stores.

If you dont have a kitchen and are living in a rented house share with a bunch of other people, you will probably eat out a lot more.

Just take a look at the number of Pizza and KFC type places everywhere, thats where their business is going.

[olde guto]

Tesco owns less than half its land/stores.It leases them.Looking at its balance sheet i reckon around £12billion of debt is lease related.Future payments.I cant quite work out what the % is for Sainsbury.

Morrisons owns 90%+ of its stores freeholds.Tesco is in a very tricky position.Probably why its keeping very quiet on the price war position.If margins fall to 2-3% at Asda and Morrisons Tesco if matching would be bankrupt within a year unless it could offload a lot of those loss making long leases.

Land or stores could make difference, any idea which it is?

If it's stores that's not surprising, a Tesco Express or Metro is likely to be in a local shopping precinct or town centre and is either owned by the local council or property investors.

Tesco owns enough land to built 15,000 homes, so I'd be surprised if it was land http://www.theguardian.com/business/2014/jun/26/tesco-hoarding-land-that-could-build-15000-homes-supermarket

[dances with sheeple]

If you dont have a kitchen and are living in a rented house share with a bunch of other people, you will probably eat out a lot more.

Just take a look at the number of Pizza and KFC type places everywhere, thats where their business is going.

Can`t really see a rented house share not having a kitchen?

[SarahBell]

Can`t really see a rented house share not having a kitchen?

Can see shared houses having potential issues over rubbish, washing up, etc

Some uni halls manage this very well - some not so good.

Edited November 16, 2014 by SarahBell

[@contradevian]

I'm sure this isn't caused by lack of Aggregate Demand caused by Gidiot, taking from the poor and giving to the rich.

Look on the bright side, sales of Range Rovers, Jags, Aston Martins, luxury yachts are up!

Edited November 16, 2014 by aSecureTenant

[long time lurking]

I'm sure this isn't caused by lack of Aggregate Demand caused by Gidiot, taking from the poor and giving to the rich.

Look on the bright side, sales of Range Rovers, Jags, Aston Martins, luxury yachts are up!

Yep they are focusing on the wrong market

[dances with sheeple]

Can see shared houses having potential issues over rubbish, washing up, etc

Some uni halls manage this very well - some not so good.

Some first year Uni halls in my experience just had cleaners picking up all the rubbish, fag butts, vomit and empty booze containers every morning, it was easier than trying to get the students to do anything for themselves, bad cases of damage might get a charge deducted at source from the living grant or something. I found a good way round cleaning problems in a shared house was right at the start of a tenancy, when there are maybe just two or three of you and rooms to fill was to get a cleaner in three days a week and just tell people viewing rooms that there was an extra tenner or whatever on their monthly rent for cleaning, most people just go along with it like they would a charge for SKY TV/Broadband or whatever.

Edited November 16, 2014 by dances with sheeple

[dances with sheeple]

Closing down supermarkets will be great mood music for the inevitable day when people just accept that house prices are going to be falling hard and then staying down for a long time, gives things a sort of early 80`s feel when you knew it was bad and getting worse.

[Executive Sadman]

Big deal. Retail always evolves...

Save our markets

Save our high streets

Save our out of town supermarkets

Save our internet shopping and deliveries

Save our 3D printers and downloads

Save our...?

[durhamborn]

Land or stores could make difference, any idea which it is?

If it's stores that's not surprising, a Tesco Express or Metro is likely to be in a local shopping precinct or town centre and is either owned by the local council or property investors.

Tesco owns enough land to built 15,000 homes, so I'd be surprised if it was land http://www.theguardian.com/business/2014/jun/26/tesco-hoarding-land-that-could-build-15000-homes-supermarket

It will be stores yes mainly.Most of the smaller stores would be lease anyway like you say.Even Morrisons is opening its new M Local stores mostly as leasehold.Thats why you see them at 90%+ and likely to come down to 80%.All/most superstores freehold,most convenience stores leasehold.

However Tesco also has a lot of superstores on leasehold,those are the ones crippling them.Worse they tend to be the ones in places where they over expanded.

If you add in the pension deficits and lease commitments over the likes of Morrisons/Asda Tesco probably needs 3% more margin.

The telling part is how Morrisons paid their dividend from free cash flow,Sainsbury might just be able to.Tesco slashed because its free cash flow is collapsing as well as profits.

Likely they will have to sell some overseas assets or a rights issue.

[spyguy]

If you dont have a kitchen and are living in a rented house share with a bunch of other people, you will probably eat out a lot more.

Just take a look at the number of Pizza and KFC type places everywhere, thats where their business is going.

Depends if you like cooking.

For a typical under 30 singleton, you could get away with a Remoska/halogen cooker, microwave + induction hub + pressure cooker.

I lived without a fridge/freezer and normal cooker for a few years.

Didn't need them. Im veggy so I just bought fresh stuff when I needed them - its only a bit of problem for the height of summer -a all two days of it the 90s.

These days, those induction hubs you get look a good idea.

I never use an oven or a grill, just the hob.

[Venger]

If you dont have a kitchen and are living in a rented house share with a bunch of other people, you will probably eat out a lot more.

Just take a look at the number of Pizza and KFC type places everywhere, thats where their business is going.

Makes a certain amount of sense. (Similar to this line of thought below.) Shared kitchens can be problematic.

Someone emailed in to Radio 4's Saturday morning programme the week before last to suggest that the reason that young people did not contribute to gardening/DIY programmes was because they couldn't afford a house. The presenter sounded distinctly uncomfortable as she read that one out.

[Guest]

If you dont have a kitchen and are living in a rented house share with a bunch of other people, you will probably eat out a lot more.

Just take a look at the number of Pizza and KFC type places everywhere, thats where their business is going.

I actually do live in a shared house, and this has been my experience.

With five adults comprising four mini-households (three singletons and a couple) sharing one kitchen, unless you arrange to eat together every night (which no-one wants to do as we all have our own lives and our own schedules), then using the kitchen to cook something becomes an exercise in negotiating around other people's oven use or constantly shuffling round them to get to the fridge, and then back again when they need the fridge, and so on.

Plus we all work long hours to pay the rent (and maybe, one day, afford a kitchen of our own in which we would have space to actually cook). Time spent cooking is time wasted.

Edited November 16, 2014 by irrationalactor

[John51]

If you dont have a kitchen and are living in a rented house share with a bunch of other people, you will probably eat out a lot more.

Just take a look at the number of Pizza and KFC type places everywhere, thats where their business is going.

Good point. More people are living alone and cooking for one is dull. I've gone weeks at a time without buying food from supermarkets. Doesn't cost much more to eat in a cafe or fast food joint if living alone.

[19 year mortgage 8itch]

I wonder how any club card points are in circulation? If there were a run on 'spending' accumulated points and benefits, what sort of magnitude of affect are we looking at?

[Stu007]

Tesco owns less than half its land/stores.It leases them.Looking at its balance sheet i reckon around £12billion of debt is lease related.Future payments.I cant quite work out what the % is for Sainsbury.

Morrisons owns 90%+ of its stores freeholds.Tesco is in a very tricky position.Probably why its keeping very quiet on the price war position.If margins fall to 2-3% at Asda and Morrisons Tesco if matching would be bankrupt within a year unless it could offload a lot of those loss making long leases.

This is an accurate assesment.

However, tesco do own a large amount of land.

They buy the land, build the store, then sell the store on with them having a 25 year lease. It WAS working well for them....

....but over expansion has left them with too many stores, and sales haven't increased inline with their extra retail space.

http://www.wisbechstandard.co.uk/news/exclusive_tesco_mothball_22_million_chatteris_store_just_weeks_before_it_was_due_to_open_with_prospect_of_250_jobs_1_3778121

[chronyx]

Morrisons have nearly finished building a massive new store near me, in one of the most expensive land areas in Surrey...

[durhamborn]

This is an accurate assesment.

However, tesco do own a large amount of land.

They buy the land, build the store, then sell the store on with them having a 25 year lease. It WAS working well for them....

....but over expansion has left them with too many stores, and sales haven't increased inline with their extra retail space.

http://www.wisbechstandard.co.uk/news/exclusive_tesco_mothball_22_million_chatteris_store_just_weeks_before_it_was_due_to_open_with_prospect_of_250_jobs_1_3778121

That link says it all,

"Last year private equity group, Osprey Income and Growth 3 LP, said it had completed the “forward funding acquisition” of the superstore at Chatteris. It had been pre-let to Tesco on an unbroken 25-year lease, with rental uplifts index-linked to RPI."

Index linked to RPI.No doubt thats the set up for all of them.Even without the competition customers wages going up slower than RPI while they are tied in to RPI increases is suicide.

[thecrashingisles]

Clearly the solution is more immigrants.