By the end of 2006, Tesco will not only be UK's biggest food retailer, it will also claim the crown as UK's largest non-food retailer. According to Verdict Research, Tesco will increase the pace of its non-food sales growth in 2006, thrusting it ahead of former non-food king ARG, owner of Argos and Homebase.
Tesco is set to overtake ARG this year, to become the UK's largest non-food retailer, and is certain to extend its lead going forward. The UK's largest grocery retailer continues to add substantial new non-food space through mezzanines, store extensions and new store builds.
Tesco is skillfully enhancing its ranges across all categories, and leading the way in both internet and in-store catalogues to create new opportunities. Moreover, as the company opens more of its large-format 'Extra' stores over the next few years, we can expect to see a lot more clothing, homewares and electricals goods in its outlets.
Storming non-food market
While consumer spending on non-food products struggled ahead by a mere 0.9% last year, UK grocers' non-food sales rocketed by 8.4%, boosting their share of the market from 8.5% to 9.1%.
Given the leading players' plans for new non-food space, improvements to in-store experience and merchandising, and aggressive development of new categories, grocers will gain further territory in the foreseeable future. Indeed, by 2007 grocers are forecast to account for one in every GBP10 spent on all non-food products in Britain.
As grocers expand their non-food offers, the rival competitors will feel pressure like never before. Over the next five years, Verdict expects the total non-food market to grow by an average of only 2.5% per year. However, when stripping out grocers' and online players' non-food sales, the figure reduces to a meager 0.7%.
Fundamentally, the above figure is what store-based competition on the high street will be left to fight for. Compounded by the effect of rising costs and more demanding customers, casualties from almost every corner of the market are inevitable, joining the likes of Allders, Courts and, most recently, Powerhouse. Ultimately, there is no retailer that can afford to have grocers outside of their field of vision.
Gap between 'best' and 'rest'
While grocers' non-food sales continue to swell, growth is being driven by the leading three players. Between 2000 and 2005, the combined non-food sales of Asda Group, Tesco and J Sainsbury almost doubled - others achieved only 7.6%.
Indeed, Wm Morrison Supermarkets is now starting to look quite exposed in non-food, and it should be doing more; with the Safeway estate now fully integrated, and many teething issues associated with the takeover out of the way, Morrison needs to step up its game as one of the leading national retailers.
Tesco, Asda and Sainsbury all acknowledge that growth opportunities in both food and grocery are finite. If Morrison is to build any significant market share, developing a credible non-food range will be essential.
UK grocers' non-food engine is far from running out of steam. Capitalizing on their low-price reputations and overriding convenience, grocers' non-food ambitions now stretch to almost every area of the retail market - including even furniture and large electricals items through their websites and catalogues.
At the same time, they are raising their game in terms of choice, display and store layout. Whereas in the past grocers have typically taken a fairly opportunistic approach in their non-food development, they are now placed to take on specialist retailers head-to-head.