Consolidation of the convenience food market in the UK continued apace this week with a £152m swoop on Northern grocer Heron Food Group by the discount retailer B&M Bargains.
Simon Aurora, boss of B&M, said that the acquisition of 251 shops was a “no brainer” of a deal and would mean that B&M could offer discount groceries from convenience shops and undercut the higher prices that supermarkets offered at its smaller stores.
“The price war from the ‘big four’ has been focusing on the big family shop…we won’t be getting involved in the weekly shop battle,” the B&M boss told media.
Mr Aurora said he saw the growth opportunity for low-cost convenience retailing as the price war between major supermarkets had focused on their larger stores, whereas items in Sainsbury’s Local and Tesco Express were often more expensive.
“The convenience sector has been growing very well and they are now the source of supermarkets’ growth while their mother-ship supermarkets have been struggling. But as a sector, the convenience market has not been well served on price,” Mr Aurora said.
Retail analyst Molly Johnson-Jones at Global Data made these comments on the development:
“The discount-convenience hybrid has just been created unexpectedly by B&M and Heron.
“B&M has continued this week’s trend of acquiring convenience stores (after Morrisons and McColl’s tie-up on Tuesday) with its acquisition of Heron for £152m. The move was unexpected, but mostly because Heron isn’t a common household name. However, with 251 convenience stores in the North of England and £274.4m of sales, it offers the opportunity for B&M to roll out a convenience offering on a relatively large scale very quickly.
“Once the rationale is considered further, the move starts to make more strategic sense. Discount retailing has experienced double digit growth over the past five years, with 2016 seeing c12% growth. The traditional medium-sized discount store model hasn’t really evolved given the supply chain limitations and location constraints that are inherent in a lean, low-margin model. Aldi and Lidl have spoken about convenience being an interesting area of UK food retail, and they have been successful with c-stores in some other European countries, but we are yet to see more than a few Aldi or Lidl convenience stores in the UK.
“If B&M starts out with the idea that the Heron stores are going to be little discounters, then a supply chain, delivery system, and range can be designed with that in mind, rather than having to be adapted from an already existing discount food system. Things as simple as the fact that many of the pallets that Aldi and Lidl keep their stock on in-store are too large to be manoeuvred around small shops in urban areas can be rectified without disrupting an entire system. Once the idea of a purely convenience discount retailer is thought through, it’s actually pretty smart. The deal combines discount and convenience, two of the highest growth areas in the sector into a proposition that we know the consumer wants.”