Is Asda too late to the convenience sector?

Asda recently announced the launch of its On the Move convenience store format in an effort to simplify the in-store shopping process for its customers. Does it have a chance to crack the saturated convenience store market, especially since Big 4 rivals Tesco, Sainsbury's and Morrisons are already established in the sector?

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Asda convenience store on the move Preyash Thakrar covid-19 pandemic lockdown
Asda will offer a new convenience store format as part of its "test and learn" strategy

While other Big 4 grocers Tesco, Sainsbury’s and Morrisons already offer smaller, more local stores, Asda has traditionally focused on larger supermarket formats.

Recently though, Asda announced the launch of its On the Move concept, where customers can easily purchase fresh food and essentials in a convenience store format.

It comes as the British retailer undergoes a sales process, where US giant Walmart is seeking to sell a majority stake to private equity firms. Walmart has owned Asda for 21 years, and a deal is expected to value the grocery giant at about £6.5 billion.

Asda convenience store on the move Preyash Thakrar covid-19 pandemic lockdown
Walmart has owned Asda for 21 years.

Asda’s first steps into convenience stores is not a sudden one. It has already partnered EG Group to launch the trial of three EG Group petrol station forecourts in the Midlands. EG Group itself is head up by billionaire brothers Mohsin and Zuber Issa, who – with the backing of private equity firm TDR Capital – have been selected by Walmart as the preferred bidder for Asda.

The convenience store market, which consists of 46,388 shops in the UK, generated £40.3 billion in sales last year, according to the Local Shop Report by the Association of Convenience Stores (ACS).

Moreover, in the four weeks to June 13, sales across the UK’s convenience stores rose by 17 per cent as shoppers stayed local during the Covid-19 lockdown. According to Nielsen’s Total Till data, the pandemic-induced convenience store sales were ahead of that from UK grocers, which saw overall sales rise 14 per cent during the period.

Asda convenience store on the move Preyash Thakrar covid-19 pandemic lockdown
The UK convenience store sector racked up £40.3bn in sales last year.

Asda said its new convenience store format was part of its “test and learn” strategy after noticing an increasing amount of customers looking to complete multiple shopping missions on a single trip.

“Our partnerships strategy is focused on making our busy customers’ lives easier,” Asda chief strategy officer Preyash Thakrar said.

“That means offering convenience when they visit our stores by bringing in complementary brands to help them complete more shopping missions in one location, and convenience that makes our great value products more accessible in local communities.

“We anticipate working with more businesses who share our passion for delivering value for customers in the coming months.”

Asda convenience store on the move Preyash Thakrar covid-19 pandemic lockdown
Asda partnered with EG Group to launch the trial at three petrol station forecourts.

Simon Geale, senior vice president for client solutions at business management consultancy Proxima, said Asda was late to the convenience market. He compared it to Marks & Spencer being late with offering an online delivery service, and Aldi with its new click-and-collect trial.

“Asda is entering the convenience store market at a time of massive change in shopping habits and growth in channel,” he explained.

“Convenience is all about location. If Asda can pinpoint the right locations to expand into, it is not too late.”

Geale further argued that the convenience store market is crowded, and that the retail giant would “need to harness innovation in understanding its customers and how it sells to them in order to land with a bang”. He added that the challenge Asda faces was “identifying the tipping points”.

Despite the Covid-19 pandemic driving shoppers into larger stores – or even online – the situation may change in 2021, should a vaccine become widespread and consumers go back to their old shopping habits when it comes to grocery.

“Asda is entering the convenience store market at a time of massive change in shopping habits”

“A perfect storm of events may have pulled shoppers away from larger format stores over the last six months but we don’t know exactly where things will stand by 2021,” Geale said.

“If we accept that the last six months is an acceleration of trends already in place then we can expect customers to continue to embrace online and convenience options and do fewer, larger ‘big shops’.

“As a brand that prides itself on delivering great value to families, Asda is going to have to work hard to get that across online and in local stores.

“That’s the big question for Asda – does the Asda value proposition work in small format stores?”

Andrew Howell, global marketing director at software firm K3 Technologies, told Retail Gazette that consumers were actually moving away from needing huge stores. He believes there is an increasing need local stores to stock up between their big online shops.

“Those equipped to service this will ultimately succeed,” he said.

“Asda’s move towards a more local, convenience format is one that demonstrates the flexibility and innovative thinking grocers now must take.

“Covid-19 measures are set to be here for at least the next six months and they need to adapt if they are to effectively service the public through the remainder of this pandemic.”

Howell further argued that Asda’s actions were likely part of a wider plan to support the rise in online deliveries. The move to online delivery for a “big shop” is one that has been progressing for years and has accelerated throughout 2020, thanks to the pandemic. Even with the nationwide lockdown over, grocers continue to work towards improving their delivery services.

“Recent moves from Aldi in this vein have only served to amplify how consumer habits are changing and how grocers are rushing to keep up,” Howell said.

“As cases spike, and consumers feel less comfortable going out in big crowds, smaller, local stores become an important alternative for those looking to stay safe.”

Despite the countless convenience-style stores that other grocers such as Tesco, Sainsbury’s, and Morrisons already offer on the high street, Geale argued that Asda has a “strong offering” and is continuously looking to innovate.

“Asda’s offering is clearly best suited to a multi-channel approach, finding convenient ways to reach their customers, in a way that best suits them,” he said.

“Getting the right supply chains is going to be critical to foster innovation and agility and not just low cost A to B style arrangements.”

Howell agreed. He added that Asda has a “powerful brand” which will resonate with its existing, wide customer base, despite the likes of Sainsbury’s and Tesco already dominating the convenience market.

“A move in this area is likely to be well received by customers who are already loyal to the Asda brand, but are looking for smaller more local alternatives to big supermarkets,” he said.

“As online delivery platforms slowly take the place of big shopping trips, Asda is making sure it can serve customers requiring immediate, local services too.

“Adding another competitor to this market will only benefit customers in the long run.”

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2 COMMENTS

  1. The proposed take-over by EG makes this an entirely logical progression. Morrisons flunked convenience stores through reckless expansion into the market , and left havoc in their wake.

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