FOOD retailing was not a licence to print money, said David Webster,
Deputy Chairman of the Argyll Group, at an international food and drink
conference in London yesterday.
But he admitted the group, which largely comprises the Safeway chain,
had ridden out the recession better than most because people still
needed to eat. It's operating profit last year was #331m on a turnover
of around #5bn.
He also admitted there had been criticisms of the profit levels of
supermarket operators not only in relation to other British businesses
but also to similar operations in Europe and the US.
''Perhaps food retailers have been somewhat slow to respond,'' he told
delegates to the Agra Europe Conference. ''This may, in part, be due to
the breadth and complexity of the issues which arise.''
Comparing current performance with a decade ago, he said that
operating margins for the food orientated supermarket groups had doubled
to 6.6% but added that many non-food groups had reached double digits in
the same period, including Body Shop at 19.1%, and Kwik Fit at 14%.
But he claimed there were six major developments in the food retail
sector which had led to the doubling of margins. These were: The advent
of superstores; the increased space for sales; the increasing purchase
of freeholds as opposed to renting; the penetration of new and often
high margin markets; the streamlining of the supply chain; and the
growth of ''own brands.''
The growth in size created efficiencies and made superstores much more
profitable than supermarkets of the 1960s and 1970s. Superstore space in
Britain had increased from 10.4 million sq ft to 28 million sq ft, out
of a total of 87.5 million sq ft in the past decade. This had been
matched by a growth in investment in systems and freeholds, the big four
having spent nearly #13bn on the latter in the past decade.
Food retailers were now competing for a bigger share of the #93bn
market in ''legitimate'' food and non-food commodities, with food
accounting for just under half this figure.
He said consumers had benefited in terms of improved quality, wider
range, higher efficiency, product development, and competitiveness. One
illustration of this was the fact that food price increases had totalled
150% in the past 10 years against 175% for the retail price index.
He claimed that return on capital employed should be the yardstick on
which supermarket groups should be judged, and this showed an average
drop from 27% to 20% over the decade, putting it on a par with US and
European groups.
At the same time the discount chains had doubled their market share to
9% with a projected 15% by the middle of this decade, many of the
once-familiar big names had disappeared and one of the majors was still
finding it difficult.
He predicted that total sales space would increase from the present 87
million sq ft to anbout 100 million before saturation occurred in
Britain. But he remained shy about predicting expansion into Europe.
Ian Davis, a partner in the consulting group, McKinsey & Co, suggested
that British retailers should put more effort into Brussels lobbying
efforts to ease the transition into Europe either by creating new stores
or by acquiring existing companies there.
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