[an error occurred while processing this directive]
BBC News
watch One-Minute World News
Last Updated: Wednesday, 9 June, 2004, 09:33 GMT 10:33 UK
Store Wars: Supermarket Showdown
Britain's biggest supermarkets are slugging it out to buy Safeway in the takeover battle of the decade. The prize at stake is the chance to dominate a sector worth 100bn a year. None of the bidders can afford to let this one go.

With 480 stores and 92,000 employees, Safeway is the fourth largest supermarket in the UK. It's a crowded market, and a constant struggle to stay in the game. "Grocery retailing in this country is the most ruthlessly competitive industry there is," says industry analyst Mark Hughes.

"For UK retail and for the city, this is an enormously important deal. It's the most important deal for a decade. The outcome will have a profound effect on supermarket retailing for the next generation," he adds.

Let battle commence

This is just the latest battle in a war that has been fought every day since the idea of the supermarket was born.

Tesco become the UK's biggest supermarket in 1995 when it raced ahead of rival Sainsbury's. Tim Mason, the store's marketing director, says it was hard work becoming number one: "No matter how fast we grew Sainsbury's were always in front of us. But slowly but surely we managed to grind them down and grind them out."

The competition got even tougher in 1999 when US discounter Wal-Mart, the world's largest company, bought Asda for 6.7bn.

Express shopping

With space for large out-of-town stores rapidly diminishing, Tesco and Sainsbury's opened up a battle on a new front - back on the High Street. Tesco led the way with its Express and Metro stores, and Sainsbury's followed with its Local and Central formats.

"It's for people popping in every day, collecting stuff for the meal tonight," explains Sainsbury's boss Sir Peter Davies. "It's not a week's shop, it's not a fortnight's shop, it's just getting something for today or tomorrow or for the weekend."

To meet the demand Tesco snapped up 400 T&S high-street stores for 530m and immediately announced plans to convert them into Express and Metro shops. The move caught the opposition sleeping, but if Tosco's land grab was bad for Sainsbury's, the news was worse for the smaller players.

Colin Graves, founder of Costcutter, a federation of 1,200 independent stores knows he has to fight back quickly. "You can only feel threatened for about five minutes and then you have to say, right, how are we going to react? What are we going to do about it?"

Non-food business

With little room left to grow in groceries, the supermarkets piled into a whole new area - non-food. Bedding, flowers, garden ornaments and televisions all became a vital part of the modern megastore.

Hazel Mills, manager of Safeway's flagship Megastore in Milton Keynes, claims it is the only growth area left in food retail. "Without the non-food in this store it would be just a basic supermarket. With non-food we have been able to create a department store feel," Mills says.

For Tesco's Mason it is all about growth: "The thing about being able to take your supermarket business into the non-foods market is that it more than doubles the market you trade in. So you go from trading in an 80bn market to a 200bn market."

Non-food has helped Tesco to maintain its lead. It's helped Asda/Wal-Mart to close in on Sainsbury's. Profits on non-food items are up to five times higher than on groceries and a quarter of all new space in supermarkets is now devoted to non-food.

Retailtainment

On average, Britons spend around 3% of their waking lives in supermarkets, so the big chains have realised that it pays to make them more fun.

Lighting, ambience and presentation all mix to convince shoppers they are having a good time. Entrepreneur Ken Morrison knows all about retailtainment, over the last 50 years he's used it to take Morrisons from market stall in Bradford to the fifth biggest UK supermarket chain.

"Well it's activity and theatre, and people create activity and activity creates theatre, it's an interchange and its different every time you come, there is always something exciting about it," he says.

Christmas crunch

Competition came to a head at Christmas as a fast-growing Asda came close to catching Sainsbury's. The question was: would Asda overtake Sainsbury's in the crucial Christmas period?

Thanks to an advertising campaign featuring celebrity chef Jamie Oliver, Sainsbury's held on to the number two position. But surprisingly, its boss admits they can't hold on for long. "We are neck and neck with Asda in the grocery market share. And one of these days, with their rate of growth and the backing of Wal-Mart, they will overtake us," Davies says.

Shock offer

On 9 January the market was thrown into turmoil. Ken Morrison stunned his rivals with a 2.9bn bid for Safeway. The impact was devastating - a Safeway takeover would turn the league upside down at a stroke.

Sainsbury's had missed out on T&S, but they couldn't afford to miss Safeway. On 13 January, they announced their multi-billion pound bid. The day after, the mighty Asda/Wal-Mart entered the race. One week later, Tesco jumped in too.

With Arcadia's Philip Green also bidding the field has become crowded but whoever wins, everyone agrees that Britain's supermarkets are in for a shake-up.

"At the end of the year the industry will be in a very different shape than it is at the start of the year, how that will play out we don't know," says Tesco's Mason, "but it is a nodal point, a change point, and there will be new competition and new battles to fight in the year ahead."

This programme was first transmitted on Wednesday 26 February 2003.


RELATED INTERNET LINKS:
The BBC is not responsible for the content of external internet sites


PRODUCTS AND SERVICES

News Front Page | Africa | Americas | Asia-Pacific | Europe | Middle East | South Asia
UK | Business | Entertainment | Science/Nature | Technology | Health
Have Your Say | In Pictures | Week at a Glance | Country Profiles | In Depth | Programmes
Americas Africa Europe Middle East South Asia Asia Pacific