As grocers continue to be battered by a perfect storm, the problem arguably causing the greatest headache is one of excess store space.
Tesco, Sainsbury’s and Asda are all seeking to make better use of their larger sheds, which have become out of kilter with modern shopping habits as consumers increasingly seek convenience.
Asda this week made the latest play to enhance the proposition of its supermarkets, launching the “game-changing” ToYou collect-and-return service for third-party retailers.
Chief executive Andy Clarke is gambling on the fact it will give more shoppers a reason to visit the embattled retailer’s stores – and bosses have boldly estimated that it will drive 40 million extra store visits per year by 2019.
Online fashion retailer Missguided has already signed up to the scheme and Asda says that is the “first of many” partnerships. But plenty more may need to sign up in order to generate the traffic the grocer is looking for.
Uncertain attraction
Shore Capital analyst Clive Black is unsure whether retailers or shoppers will see the attraction of ToYou.
“There has been a much greater interest from the retail trade in click and collect than there has been from punters actually wanting to use it”
Clive Black, Shore Capital
“The supermarkets in particular have a natural warmth and empathy towards click-and-collect because it can materially reduce their operating costs,” Black suggests. “The less delivery and fulfilment they have to undertake, the more cost they save per delivery.
“If you can utilise stores that are suffering from ‘overspaceness’ to fulfil online orders both internally and for third parties, it makes eminent sense.
“What I would say though is that there has been a much greater interest from the retail trade in click-and-collect than there has been from punters actually wanting to use it.”
However, Black adds that etailers would be the most likely businesses to see the opportunity.
“If pure plays can increase their reach so that orders can be aggregated and sent to a supermarket, that clearly would be very helpful,” he says.
“But they still have to be delivered to the supermarket, so it depends on the volume of the drop. If it’s only a small amount of orders, then they might as well continue to deliver directly to shoppers’ homes.”
Big name partners
Planet retail analyst David Gray agrees that pure plays are Asda’s probable partners when seeking to expand its ToYou service, but argues that bigger high street names will need to be attracted to generate the additional footfall the supermarket giant is targeting.
Grays dubs 40 million extra visits per year an “optimistic” number and explains: “The success depends on how many third parties they get to sign up and whether they are big names that we are all aware of.
“The lack of stores Asda has in places like London, where this service is more sought after, means collections will be limited to people who are already at these stores doing a weekly shop”
David Gray, Planet Retail
“Can they get the big non-food retailers to sign up? Even if they do attract high street names, a lot of Asda’s stores are not in the best locations – they are out of town, you need to drive to them.
“The lack of stores Asda has in places like London, where this service is more sought after, means collections will be limited to people who are already at these stores doing a weekly shop. The opposite could be true for Tesco or Sainsbury’s who have more inner city locations, which are convenient places to collect orders.”
Lofty targets
The scepticism of Black and Gray is understandable, not just because it is a new service, but because we’ve seen Asda fail to achieve lofty predictions before.
Two years ago the grocer said it was targeting 1,000 click-and-collect sites across the UK – a journey it slammed the brakes on last month having reached round 640, still some way short of its target.
Has Asda learned lessons from that, or has it set itself up for another fall by publicly declaring another target – 40 million extra visits per year by 2019 – that could simply prove too lofty to achieve?
“I’ll believe it when I see it,” Black quips when asked if Asda’s initiative will generate such a high number of additional shopper visits. “Missguided is a great website and it’s a real mover and shaker in the online fashion arena. But do a lot of its customers drive to Asda to shop? And would they go there simply to pick up an order?”
Gray acknowledges the desire to drive customers into larger stores that are suffering from like-for-like sales declines, but claims it is “unlikely” that so many customers will go to an Asda supermarket specifically to collect or return an order.
Broken down, the 40 million target equates to the grocer attracting more than 170 extra visitors per day into each of its 641 stores.
“Asda will be banking on the cost of this being lower than the incremental sales it will get from the additional visits. It’s a bit of a gamble”
David Gray, Planet Retail
“Whether it works out or not, I’m not entirely convinced,” Gray says. “40m sounds like a lot. In some Asda stores, you are seeing figures in single digits when it comes to the number of people collecting groceries – that’s drastically lower than what Asda is looking at here, which is an extra 170-odd people coming into each store to make a collection every day and then maybe doing some shopping while they are there.”
Fulfilment challenges
For Gray, ToYou throws up another challenge in terms of the logistics of working with third parties on fulfilment, which he argues could actually add extra cost to Asda’s business.
“In the current climate where margins are going down, profits are suffering and food deflation is taking hold, it’s important to take as much cost out of the business as possible,” Gray says.
“Asda will be banking on the cost of this being lower than the incremental sales it will get from the additional visits. It’s a bit of a gamble.”
As big four rivals Tesco and Sainsbury’s pursue third-party concessions with the likes of Arcadia, Argos and Jessops to get more bang from their buck in larger supermarkets, Asda is rolling the dice on a comparatively untried and untested method of wooing more shoppers into stores.
At a time when it is losing ground on its competitors, choosing to twist rather than stick could define how long it takes for Asda’s ailing sales to recover.
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