FOOD
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WHAT HAS BECOME VERY CLEAR IN RECENT MONTHS IS THE GAP BETWEEN PRIME AND SECONDARY STORES.
At the same time, Morrisons’ vertical supply chain has been paying dividends, with the business as a whole growing by 5.6%, of which the wholesale business contributed 4.3% growth.
We expect M&S’s £750m acquisition of a 50% stake in Ocado’s retail business to result in improved short-term performance, but that has been bought at very significant cost.
Ocado now has a clear lead in online grocery fulfilment. Digital sales platforms are time consuming and very expensive for retailers to develop and there is an extremely lucrative market in selling the tech to those retailers that lag behind. Since WM Morrison made the decision to engage with Ocado in 2013, it has subsequently been developing its own in-store fulfilment model in order to reduce the costs of the service that all the grocery operators are forced to accept.
Waitrose were under increased pressure, with falling sales reported towards the end of the year and the John Lewis group reporting a 98.8% fall in underlying profits for the first half of the year. It sold five “Little Waitrose” stores in Greater London to Co-op and Aldi and closed its 40,000 sq ft underperforming supermarket in Staines, Surrey.
The discount operators, Aldi and Lidl, have outperformed the market and have been the most active grocery retailers in the last 12 months. Their aggressive expansion plans continue with Aldi taking a further 70 new stores and Lidl opening a further 50 during the past year. From existing estates of 815 stores and 700 stores respectively, the companies are both planning to have around 1,000 stores by 2022.
The improved performance and outlook for the grocery sector has been reflected in its property investment market, with around £1bn of stores being transacted during 2018.
What has become very clear in recent months is the gap between prime and secondary stores. The long-income funds are prepared to pay prime prices for the best long-let assets with inflation-linked reviews. Meanwhile, debt-backed propcos are keen on acquiring the shorter lease length stores which have fallen out of favour with the institutions. The yield spread between prime assets and secondary properties is around 400 basis points. This spread has recently been reflected in the £46.5m sale of a Morrison’s in Borehamwood at 3.5% NIY while a Tesco in Irlam sold for £28.5m reflecting 7.8% NIY.
EXECUTIVE SUMMARY
THE MARKET
RETAIL REIMAGINED
MONEY
IS THIS THE END OF THE GOLDEN AGE OF ONLINE RETAILING?
KNOWLEDGE
SHOPPING WITH A CONSCIENCE
FOOD
REGIONAL UPDATES
CONTACTS
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