Supermarkets cut space for first time in a decade

Shop floors shrink by 1 million sq ft as desperate chains take drastic action

THE total floorspace owned by Britain’s supermarkets has shrunk by over a million square feet in the past year – the equivalent of 13 football pitches – the first reduction in more than a decade.

Analysts have examined the largest groups as far back as 2004, when Tesco was almost half its current size, but some observers believe the cut may be the first since the 1940s.

Supermarket retailers have been hit by what has been described as a ‘perfect storm’ in the past 12 months with the implementation of price cuts aimed at undermining rivals, the falling cost of some foods and the looming impact of the Government’s new national living wage.

In addition, shoppers are making fewer trips to big stores, preferring to shop locally at convenience shops or ordering online.

The net reduction of floorspace – the result of closures or sale of sites – contrasts with the fastest rate of growth in 2009 when the biggest eight store groups grew by almost ten million square feet.

Tesco announced in January that it would close 43 stores and Morrisons revealed earlier this month that it would split off its 170-store M Local convenience shop chain and close 11 big stores.

In the past 12 months the Co-op has spun off its multi-million square foot pharmacy business and it also plans to close 350,000 square feet of supermarket space every year.

Experts at broker Bernstein said in a report that the space contraction of around 1 per cent among the biggest eight groups – which include Asda, Sainsbury’s, Lidl, Aldi and Waitrose – was a ‘remarkable’ turn of events.

Analyst Bruno Monteyne said even excluding the Co-op, which has been forced into a major restructuring, space growth is at its slowest for years.

‘This is a major change in trend,’ he said. ‘For the previous nine years space grew on average by 4.9 per cent and volumes grew by 0.5 per cent. What a mismatch in supply and demand.’

He said the move towards a reversal of the previous trend meant supermarkets could begin to become much more efficient.

At the same time German discounters Aldi and Lidl are each continuing to add an estimated 500,000 square feet of floorspace every year.

The pressure continued to mount on Britishbased supermarket groups last week when Lidl signalled a pay rise for staff ahead of demands made by Chancellor George Osborne for a minimum wage of £7.20 an hour from next April.

Lidl said that from October it would be the first food retailer to implement ethical pay levels as recommended by the Living Wage Foundation. Its employees will earn a minimum of £8.20 an hour in England, Scotland and Wales and £9.35 an hour in

London. Currently, Lidl pays its staff a minimum of £7.30 an hour, with those in London getting £8.03.

Supermarket analyst David Gray, at Planet Retail, said: ‘It’s great news for Lidl’s workforce and is partly driven by the fact they’re doing well and they have more cash available. But they also operate a more efficient model – as you might see from the pallets on the shop floor – and each store has fewer staff.’

The battle for customers has taken its toll on supermarket share prices. On Friday, Sainsbury’s shares hit 218p. The last time it was as low was in 2003.

Meanwhile, analysts predicted a price-cutting campaign as chains begin to focus on attracting shoppers in the run-up to Christmas.