What is Consolidation?
Consolidation is the mechanism by which an increasing share of a specific market falls under the control of a reduced number of participants.
It is a consequence of competitive and environmental pressures that are present in most markets.
What are the different mechanism through which consolidation occurs?
- Business Failure - Businesses previously active in a market may cease trading or may move into other markets, thus leaving those that remain with interested shares.
- Organic change - Greater competitive effectiveness may allow one or more businesses to gain market share at the expense of rivals.
- Merger - This describes the formation of alliances between friendly businesses. Depending on the terms, the businesses taking part may retain a degree of independence and distinct identities.
- Acquisition - This describes the takeover of one business by another; the acquiring company may already be active in the marker or may be using the acquisition as a means of market entry.
Acquisitions usually involve larger companies taking over smaller ones but the opposite is not uncommon. The acquisition of Safeway by Morrisons is an example of a small retailer acquiring a larger, but more vulnerable, rival.
What are the key drivers of consolidation?
Market consolidation is typically a characteristic of markets which have reached, or passed the point of maturity, as a result of a series of events:
- Opportunities for volume growth are limited and price competition drives down margin
- Smaller participants are forced out of the market
- Surviving participants are forced to become more aggressive, seeking increased market share through acquisition.
The convenience sector, however, is at an early stage of its life cycle and therefore has different drivers of consolidation, which do not represent those of a market in maturity:
- The need to develop portfolio scale
- The need to acquire quality sites
- Growing cost base
- Opportunities to reduce costs by applying best practice to acquired sites
- Opportunities to expand sales by applying best practice to acquired sites
What consolidation has occurred recently?
The most significant consolidation that has occurred in the grocery market recently is Morrisons’s acquisition of Safeway. This was first announced in January 2003 and was completed in March 2004.
Morrisons acquired 427 Safeway stores of varying sizes:
| Size Band |
Number of Safeway Stores |
| <15,000 sq ft |
138 |
| 15,001 – 25,000 sq ft |
171 |
| >25,001 sq ft |
118 |
| Total |
427 |
Source: Enlarged Group/ IGD Stores Database 2004-08-20
- > 25,001 sq ft: stores will be converted to the established Morrisons superstore format and will carry the full Morrisons range, with the usual pricing structures and promotional programmes.
- 15,001-25,000 sq ft: stores will also be converted into Morrisons, but since these stores are smaller than the majority of existing Morrisons stores, the execution will be modified accordingly.
- <15,000 sq ft: stores will retain their current Safeway branding and will be operated primarily as top-up and convenience shopping locations.
Convenience Sector Consolidation
There has been a great deal of consolidation activity in the convenience sector since 2002, resulting in fewer, larger operators. This is summarised in the below chart:
| Business Acquired |
Acquisition by |
Number of stores acquired |
| Budgens |
Musgrave |
235 |
| Europa |
Tesco |
45 |
| T&S Stores |
Tesco |
1,215 |
| Local plus |
Co-op |
64 |
| Bells Stores |
Sainsbury’s |
54 |
| Balfour |
Co-op |
111 |
| Alldays |
Co-op |
603 |
| Jacksons |
Sainsbury’s |
114 |
| Aberness |
Somerfield |
36 |
Source: IGD Research 2004
