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Non-foods in Grocery Multiples - UK - March 2009

Sales of non-foods by grocers like Tesco and Asda have boomed in the past five years, rising by 52% since 2003 to reach £20.4 billion annually. But now they are facing a tougher environment as consumer spending slows, out-of-town hypermarket space becomes more difficult to obtain and the ageing population means fewer family-age consumers.

Supermarkets are responding with new store formats like non-food standalones, new ranges and a major push to increase their home shopping sales. They are also taking on high street general merchandise rivals like Argos with their own catalogue businesses.

The level of competition is increasing rapidly, with Sainsbury’s set to relaunch its own online offer and Morrisons also planning to develop its non-foods ranges. Meanwhile, the discounters are engaged in rapid store portfolio expansion, extending their penetration of the budget end of the market, threatening established players in the sector.

Key themes

  • Which areas of the market have the best prospects for future sales growth?

  • What impact will the development of home shopping by Tesco, Asda and Sainsbury’s have on the market?

  • What is the potential for the non-food only stores being developed by Tesco and Asda?

  • How can smaller players like Sainsbury’s and Morrisons build their non-food sales given the dominance of Tesco and Asda?

  • How might non-foods in supermarkets be affected by the recession?

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Table of contents

  1. Issues in the Market

      • Key themes
        • Definitions
          • Product categories
            • Financial definitions
              • Abbreviations
              • Future Opportunities

                • Widening the appeal of standalones
                  • Tempting older customers
                    • How to expand the teenage fanclub?
                      • Spending time to save money
                        • Male Shoppers: Potential still unexploited
                        • Market in Brief

                          • Grocers’ non-food growth slows dramatically
                            • Clothing and footwear the main growth driver
                              • Research shows significant opportunities
                                • The competitor line-up
                                  • Tesco
                                    • Asda
                                      • Sainsbury’s
                                        • Morrisons
                                          • The discounters
                                            • What will happen to the non-foods market?
                                              • The consumer downturn will hit spending growth
                                                • Trading down may help
                                                  • Margins under pressure
                                                    • Retirees set to grow
                                                      • Competition and planning law
                                                        • Online offer expands
                                                          • Increased flexibility of store formats and distribution
                                                          • Internal Market Environment

                                                            • Key points
                                                              • Planning laws
                                                                • Competition appeal goes Tesco’s way
                                                                  • Growth of non-food space
                                                                    • Internet shopping
                                                                        • Figure 1: Estimated grocers’ e-commerce sales, 2007
                                                                    • Broader Market Environment

                                                                      • Key points
                                                                        • Consumers will hold back on spending
                                                                            • Figure 2: UK real PDI growth, consumer expenditure growth, bank base rate and savings ratio, actual and projected, 2003-13
                                                                          • Inflation set to plummet
                                                                              • Figure 3: UK actual and projected price inflation in food and selected non-food markets, 2003-13
                                                                            • Population moves upmarket
                                                                                • Figure 4: UK adult population 15+, by socio-economic group, 2003-08 and 2008-13
                                                                              • Fewer families means a challenge to supermarkets
                                                                                  • Figure 5: UK adult population 15+ by lifestage, percentage change, 2003-08 and 2008-13
                                                                                • Car ownership rises
                                                                                  • Figure 6: GB percentage of households with access to a car, 1985-2005
                                                                              • The Market in Context

                                                                                • Key points
                                                                                  • Sales through food retailers versus all retail sales
                                                                                    • Figure 7: All retail sales and predominantly food retailers’ sales, at current prices, 2003-08
                                                                                    • Figure 8: Growth in all retail sales and predominantly food retailers’ sales, at current prices, 2003-08
                                                                                  • Sales through food stores versus non-food stores
                                                                                      • Figure 9: Sales through food retailers versus non-food retailers, at current prices, 2003 and 2008
                                                                                    • Grocers’ non-food sales compared with total consumer expenditure
                                                                                      • Figure 10: Grocers’ estimated sales in individual product categories compared to consumer expenditure, 2008, and % change, 2003-08
                                                                                  • Strengths and Weaknesses in the Market

                                                                                    • Strengths
                                                                                      • Weaknesses
                                                                                      • Who’s Innovating?

                                                                                        • Asda – cutting the queues for the doctor
                                                                                          • Tesco – taking Direct into new places
                                                                                            • Sainsbury’s and Tesco – moving into the digital sphere
                                                                                              • Asda – Finding points of difference in a crowded clothing market
                                                                                              • Market Size and Forecast

                                                                                                • Key points
                                                                                                  • Dramatic slowdown underway
                                                                                                    • Figure 11: Non-food sales of grocers, 2003-13
                                                                                                  • Factors used in the forecast
                                                                                                    • Breakdown by category
                                                                                                        • Figure 12: Estimated sales of selected non-food categories in grocery multiples, at current prices, 2003-08
                                                                                                      • What will affect this market in future?
                                                                                                        • Space: Switch of strategy?
                                                                                                          • Competition Commission
                                                                                                            • Consumer spending priorities
                                                                                                              • Inflation versus deflation
                                                                                                                • Rise of home shopping
                                                                                                                  • Family lifestage less important
                                                                                                                  • Purchasing of Non-food Items in Grocery Multiples

                                                                                                                    • Key points
                                                                                                                      • Tesco leads non-foods sales in most areas
                                                                                                                        • Figure 13: Supermarkets used for buying non-food items in the last 12 months, January 2009
                                                                                                                        • Figure 14: Types of non-food items bought at supermarkets/grocery stores in the last 12 months, January 2009
                                                                                                                      • Asda achieves wider womenswear age appeal
                                                                                                                          • Figure 15: Purchasing of clothing and footwear at supermarket used for grocery shopping, January 2009
                                                                                                                        • Sainsbury’s and Morrisons behind on books
                                                                                                                          • Childless less keen on CDs/DVDs
                                                                                                                            • Figure 16: Supermarkets/grocery stores used for buying CDs/DVDs/video games, by whether household has children or not, January 2009
                                                                                                                          • Gardening and DIY: Potential for growth?
                                                                                                                            • Seasonal products: How to encourage men to buy?
                                                                                                                              • Figure 17: Supermarkets/grocery stores used for buying seasonal products, by gender, January 2009
                                                                                                                            • Number of types of non-food items bought
                                                                                                                              • Figure 18: Number of types of non-food items bought at supermarkets/grocery stores in the last 12 months, January 2009
                                                                                                                              • Figure 19: Types of non-foods items bought at supermarkets/grocery stores in the last 12 months, by number of types of non-food items bought, January 2009
                                                                                                                            • Tesco far ahead in online non-food
                                                                                                                              • Figure 20: Browsing and ordering non-food items from supermarket websites, January 2009
                                                                                                                            • Grocers could promote online business in-store
                                                                                                                              • Figure 21: Supermarkets/grocery stores used for browsing non-foods online and ordering online, by supermarket used for grocery shopping, January 2009
                                                                                                                          • Consumer Shopping Behaviour

                                                                                                                            • Key points
                                                                                                                              • Impulse the biggest driver of purchases
                                                                                                                                • Figure 22: Shopping behaviour when buying non-foods from grocery multiples, January 2009
                                                                                                                              • Impulse buying female- and child-driven?
                                                                                                                                • Figure 23: Agreement with statement: ‘I sometimes buy on impulse while shopping for groceries’, by gender and presence of children, January 2009
                                                                                                                              • Non-foods a destination for 25-44s
                                                                                                                                • Older consumers avoid non-foods
                                                                                                                                • Consumer Attitudes and Typologies

                                                                                                                                  • Key points
                                                                                                                                    • Convenience a key appeal
                                                                                                                                      • Quality and presentation not a problem
                                                                                                                                          • Figure 24: Attitudes towards non-foods in grocery multiples, January 2009
                                                                                                                                        • Children key in convenience and price
                                                                                                                                            • Figure 25: Respondents tending to agree with statements about non-foods in supermarkets, by presence of children, January 2009
                                                                                                                                          • Women more convinced on range
                                                                                                                                              • Figure 26: Respondents tending to disagree with statements about non-foods in supermarkets, by gender, January 2009
                                                                                                                                            • Men and teens value expertise
                                                                                                                                              • Consumer typologies
                                                                                                                                                  • Figure 27: Average scores for agreement with attitudinal statements regarding buying non-food items at supermarkets, January 2009
                                                                                                                                                  • Figure 28: Target groups based on attitudes towards buying non-food items at supermarkets, January 2009
                                                                                                                                                • Specialist supporters (12%)
                                                                                                                                                  • Who are the Specialist supporters?
                                                                                                                                                    • Undecided (33%)
                                                                                                                                                      • Who are the Undecided?
                                                                                                                                                        • Knowledge concerned (23%)
                                                                                                                                                          • Who are the Knowledge concerned?
                                                                                                                                                            • Supermarket fans (32%)
                                                                                                                                                              • Who are the Supermarket fans?
                                                                                                                                                                  • Figure 29: Consumer shopping behaviour, by consumer typologies, January 2009
                                                                                                                                                              • Brand Elements

                                                                                                                                                                  • Brand map
                                                                                                                                                                    • Figure 30: Brand map for non-foods in grocery multiples, January 2009
                                                                                                                                                                  • Aldi
                                                                                                                                                                    • What the consumer thinks
                                                                                                                                                                      • Figure 31: Attitudes towards the Aldi brand for non-foods, January 2009
                                                                                                                                                                    • ASDA
                                                                                                                                                                      • What the consumer thinks
                                                                                                                                                                        • Figure 32: Attitudes towards the ASDA brand for non-foods, January 2009
                                                                                                                                                                      • Lidl
                                                                                                                                                                        • What the consumer thinks
                                                                                                                                                                          • Figure 33: Attitudes towards the Lidl brand for non-foods, January 2009
                                                                                                                                                                        • Morrisons
                                                                                                                                                                          • What the consumer thinks
                                                                                                                                                                            • Figure 34: Attitudes towards the Morrisons brand for non-foods, January 2009
                                                                                                                                                                          • Sainsbury’s
                                                                                                                                                                            • What the consumer thinks
                                                                                                                                                                              • Figure 35: Attitudes towards the Sainsbury’s brand for non-foods, January 2009
                                                                                                                                                                            • Tesco
                                                                                                                                                                              • What the consumer thinks
                                                                                                                                                                                • Figure 36: Attitudes towards the Tesco brand for non-foods, January 2009
                                                                                                                                                                              • Brand qualities for grocery brands in non-foods
                                                                                                                                                                                • Tesco scores for convenience and reliability
                                                                                                                                                                                  • Figure 37: Personality of various grocery brands in non-foods, January 2009
                                                                                                                                                                                • Experience of grocery brands for non-foods
                                                                                                                                                                                  • Large numbers have not experienced discounters
                                                                                                                                                                                    • Figure 38: Consumer usage of various grocery brands for non-foods, January 2009
                                                                                                                                                                                  • Brand intentions for grocery brands for non-foods
                                                                                                                                                                                    • Strong consideration across brands
                                                                                                                                                                                      • Figure 39: Consideration of various grocery brands for non-foods, January 2009
                                                                                                                                                                                    • Brand momentum for grocery brands for non-foods
                                                                                                                                                                                      • Tesco still seen as gaining ground
                                                                                                                                                                                        • Figure 40: Momentum of various grocery brands for non-foods, January 2009
                                                                                                                                                                                      • Motivation for using grocery brands for non-foods
                                                                                                                                                                                        • Clothing the biggest pull for Asda
                                                                                                                                                                                          • Figure 41: Brand motivation of various grocery brands for non-foods, January 2009
                                                                                                                                                                                        • Brand satisfaction for grocery brands for non-foods
                                                                                                                                                                                          • Asda most satisfying its customers
                                                                                                                                                                                            • Figure 42: Satisfaction of various grocery brands for non-foods, January 2009
                                                                                                                                                                                          • Brand commitment to grocery brands for non-foods
                                                                                                                                                                                            • Nearly one in three would recommend Tesco
                                                                                                                                                                                              • Figure 43: Commitment to various grocery brands for non-foods, January 2009
                                                                                                                                                                                            • Round up
                                                                                                                                                                                            • Retail Competitor Analysis

                                                                                                                                                                                              • Key points
                                                                                                                                                                                                • The competitive line-up
                                                                                                                                                                                                    • Figure 44: Grocers’ non-food competitive position, 2009
                                                                                                                                                                                                  • Evaluation
                                                                                                                                                                                                    • Figure 45: Non-foods in grocery multiples, evaluation, 2009
                                                                                                                                                                                                  • Recommendations for retailers to realise their potential
                                                                                                                                                                                                  • Retailer Profiles

                                                                                                                                                                                                      • Tesco
                                                                                                                                                                                                        • Strategic evaluation
                                                                                                                                                                                                          • Background
                                                                                                                                                                                                            • Non-foods strategy
                                                                                                                                                                                                              • Retail proposition in non-foods (including services)
                                                                                                                                                                                                                • Non-food services
                                                                                                                                                                                                                  • Major non-food developments
                                                                                                                                                                                                                    • Retail branding in non-foods
                                                                                                                                                                                                                      • UK store portfolio
                                                                                                                                                                                                                          • Figure 46: Tesco Plc, UK outlet numbers and floor space, 2004-08
                                                                                                                                                                                                                          • Figure 47: Tesco Plc, UK outlet numbers, by format type, 2004-08
                                                                                                                                                                                                                        • UK financial performance
                                                                                                                                                                                                                            • Figure 48: Tesco Plc, group and UK financial performance, 2004-08
                                                                                                                                                                                                                          • Home shopping
                                                                                                                                                                                                                            • Asda
                                                                                                                                                                                                                              • Strategic evaluation
                                                                                                                                                                                                                                • Background
                                                                                                                                                                                                                                  • Non-foods strategy
                                                                                                                                                                                                                                    • Retail proposition in non-foods
                                                                                                                                                                                                                                      • Major recent non-food developments
                                                                                                                                                                                                                                        • Retail branding in non-foods
                                                                                                                                                                                                                                          • UK store portfolio
                                                                                                                                                                                                                                              • Figure 49: Asda, UK outlet numbers, by format type and total floor space, 2003-07
                                                                                                                                                                                                                                            • UK financial performance
                                                                                                                                                                                                                                              • Figure 50: Asda, financial performance, 2003-07
                                                                                                                                                                                                                                            • E-commerce and home shopping
                                                                                                                                                                                                                                              • J Sainsbury
                                                                                                                                                                                                                                                • Strategic evaluation
                                                                                                                                                                                                                                                  • Background
                                                                                                                                                                                                                                                    • Non-foods strategy
                                                                                                                                                                                                                                                      • Retail proposition in non-foods (including services)
                                                                                                                                                                                                                                                        • Key recent developments in non-foods
                                                                                                                                                                                                                                                          • Retail branding in non-foods
                                                                                                                                                                                                                                                            • UK store portfolio
                                                                                                                                                                                                                                                              • Figure 51: Sainsbury’s Supermarkets, outlets, by size, 2004-08
                                                                                                                                                                                                                                                            • UK financial performance
                                                                                                                                                                                                                                                              • Figure 52: Sainsbury's Supermarkets, financial performance, 2004-08
                                                                                                                                                                                                                                                            • Home shopping
                                                                                                                                                                                                                                                              • Morrisons
                                                                                                                                                                                                                                                                • Strategic evaluation
                                                                                                                                                                                                                                                                  • Background
                                                                                                                                                                                                                                                                    • Non-foods strategy
                                                                                                                                                                                                                                                                      • Retail proposition in non-foods (including services)
                                                                                                                                                                                                                                                                        • Non-food services
                                                                                                                                                                                                                                                                          • Retail branding in non-foods
                                                                                                                                                                                                                                                                            • UK store portfolio
                                                                                                                                                                                                                                                                              • Figure 53: WM Morrison Group, UK outlet numbers and floor space, 2005-09
                                                                                                                                                                                                                                                                            • UK financial performance
                                                                                                                                                                                                                                                                              • Figure 54: WM Morrison Group, financial performance, 2005-09
                                                                                                                                                                                                                                                                            • Home shopping
                                                                                                                                                                                                                                                                            • Appendix – Broader Market Environment

                                                                                                                                                                                                                                                                                • Figure 55: PDI at 2003 Prices, consumer expenditure at 2003 prices, Bank of England base rate and savings ratio, 2003-13
                                                                                                                                                                                                                                                                                • Figure 56: Inflation rates for various items, 2003-13
                                                                                                                                                                                                                                                                            • Appendix – Purchasing of Non-food Items in Grocery Multiples

                                                                                                                                                                                                                                                                                • Figure 57: Supermarket or supermarket used: for buying menswear and womenswear, by detailed demographics*, 2009
                                                                                                                                                                                                                                                                                • Figure 58: Supermarket or supermarket used: for buying childrenswear/babywear and fashion accessories/jewellery/watches, by detailed demographics*, 2009
                                                                                                                                                                                                                                                                                • Figure 59: Supermarket or supermarket used: for buying cosmetics/fragrances, by detailed demographics*, 2009
                                                                                                                                                                                                                                                                                • Figure 60: Supermarket or supermarket used: for buying books, by detailed demographics*, 2009
                                                                                                                                                                                                                                                                                • Figure 61: Supermarket or supermarket used: for buying CDs/DVDs/video games, by detailed demographics*, 2009
                                                                                                                                                                                                                                                                                • Figure 62: Supermarket or supermarket used: for buying electrical items, by detailed demographics*, 2009
                                                                                                                                                                                                                                                                                • Figure 63: Supermarket or supermarket used: for buying small electrical appliances and cookware/kitchenware, by detailed demographics*, 2009
                                                                                                                                                                                                                                                                                • Figure 64: Supermarket or supermarket used: for buying household linens/textiles, by detailed demographics*, 2009
                                                                                                                                                                                                                                                                                • Figure 65: Supermarket or supermarket used: for buying DIY/gardening products, by detailed demographics*, 2009
                                                                                                                                                                                                                                                                                • Figure 66: Supermarket or supermarket used: for buying seasonal products, by detailed demographics*, 2009
                                                                                                                                                                                                                                                                                • Figure 67: Supermarket or supermarket used: for buying baby and nursery equipment, toys and games, and sports and leisure, by detailed demographics*, 2009
                                                                                                                                                                                                                                                                                • Figure 68: Supermarkets used for browsing non-foods online and ordering online, by detailed demographics*, 2009
                                                                                                                                                                                                                                                                                • Figure 69: Supermarkets used for browsing non-foods online and then buying in store, by detailed demographics*, 2009
                                                                                                                                                                                                                                                                                • Figure 70: Supermarkets used for browsing non-foods online but not buying, by detailed demographics*, 2009
                                                                                                                                                                                                                                                                                • Figure 71: Number of types of non-food items bought at supermarkets/grocery stores in the last 12 months, by detailed demographics*, January 2009
                                                                                                                                                                                                                                                                            • Appendix – Consumer Shopping Behaviour

                                                                                                                                                                                                                                                                                • Figure 72: Shopping behaviour when buying non-foods from grocery multiples, by detailed demographics*, 2009
                                                                                                                                                                                                                                                                                • Figure 73: Shopping behaviour when buying non-foods from grocery multiples, by detailed demographics*, 2009
                                                                                                                                                                                                                                                                            • Appendix – Attitudes and Typologies

                                                                                                                                                                                                                                                                                • Figure 74: Agreement with statement: ‘It’s convenient to buy non-food products while grocery shopping‘, by detailed demographics*, 2009
                                                                                                                                                                                                                                                                                • Figure 75: Agreement with statement: ‘It’s easier to buy non-food products at a supermarket than on the high street‘, by detailed demographics*, 2009
                                                                                                                                                                                                                                                                                • Figure 76: Agreement with statement: ‘It’s difficult to beat supermarkets on price ‘, by detailed demographics*, 2009
                                                                                                                                                                                                                                                                                • Figure 77: Agreement with statement: ‘There’s a good range of non-food products to choose from ‘, by detailed demographics*, 2009
                                                                                                                                                                                                                                                                                • Figure 78: Agreement with statement: ‘Non-food products in supermarkets are poorly displayed or presented ‘, by detailed demographics*, 2009
                                                                                                                                                                                                                                                                                • Figure 79: Agreement with statement: ‘I trust supermarket own-brand quality in non-food products ‘, by detailed demographics*, 2009
                                                                                                                                                                                                                                                                                • Figure 80: Agreement with statement: ‘Quality of own-brand non-food products isn’t that good ‘, by detailed demographics*, 2009
                                                                                                                                                                                                                                                                                • Figure 81: Agreement with statement: ‘Supermarket staff often lack knowledge about non-food products ‘, by detailed demographics*, 2009
                                                                                                                                                                                                                                                                                • Figure 82: Agreement with statement: ‘I prefer to buy non-food products from a range of specialist shops ‘, by detailed demographics*, 2009
                                                                                                                                                                                                                                                                                • Figure 83: Agreement with statement: ‘I like the longer opening hours of supermarkets ‘, by detailed demographics*, 2009
                                                                                                                                                                                                                                                                                • Figure 84: Agreement with statement: ‘I prefer shopping for non-food products in a department store ‘, 2009
                                                                                                                                                                                                                                                                                • Figure 85: Agreement with statement: ‘I can get most things I need from a supermarket without going anywhere else ‘, by detailed demographics*, 2009
                                                                                                                                                                                                                                                                                • Figure 86: Consumer typologies, by detailed demographics*, January 2009

                                                                                                                                                                                                                                                                            Companies Covered

                                                                                                                                                                                                                                                                            • Aldi Stores Ltd (UK & Ireland)
                                                                                                                                                                                                                                                                            • Alliance Boots
                                                                                                                                                                                                                                                                            • Argos
                                                                                                                                                                                                                                                                            • Asda Group Ltd
                                                                                                                                                                                                                                                                            • Bank of England
                                                                                                                                                                                                                                                                            • Black & Decker UK
                                                                                                                                                                                                                                                                            • Co-operative Group
                                                                                                                                                                                                                                                                            • Competition Commission
                                                                                                                                                                                                                                                                            • Debenhams Total (GTV)
                                                                                                                                                                                                                                                                            • Dobbies Garden Centres plc
                                                                                                                                                                                                                                                                            • Electrolux
                                                                                                                                                                                                                                                                            • Garnier
                                                                                                                                                                                                                                                                            • Homebase Ltd
                                                                                                                                                                                                                                                                            • Hoover Ltd
                                                                                                                                                                                                                                                                            • J. Sainsbury
                                                                                                                                                                                                                                                                            • John Lewis Plc (department store)
                                                                                                                                                                                                                                                                            • L'Oréal (UK)
                                                                                                                                                                                                                                                                            • LG Electronics (UK)
                                                                                                                                                                                                                                                                            • Lidl (UK)
                                                                                                                                                                                                                                                                            • Marks & Spencer
                                                                                                                                                                                                                                                                            • Morphy Richards Ltd
                                                                                                                                                                                                                                                                            • Ocado Ltd
                                                                                                                                                                                                                                                                            • Office for National Statistics
                                                                                                                                                                                                                                                                            • Office of Fair Trading
                                                                                                                                                                                                                                                                            • Primark Stores Ltd
                                                                                                                                                                                                                                                                            • Safeway Stores
                                                                                                                                                                                                                                                                            • Samsung Electronics (UK) Ltd
                                                                                                                                                                                                                                                                            • Sony (UK) Ltd
                                                                                                                                                                                                                                                                            • Tefal UK
                                                                                                                                                                                                                                                                            • Tesco Personal Finance Limited
                                                                                                                                                                                                                                                                            • Waitrose
                                                                                                                                                                                                                                                                            • Wal-Mart Stores, Inc
                                                                                                                                                                                                                                                                            • Wm Morrison Supermarkets
                                                                                                                                                                                                                                                                            • Woolworths Group plc
                                                                                                                                                                                                                                                                            • Zanussi
                                                                                                                                                                                                                                                                            • Zavvi

                                                                                                                                                                                                                                                                            Non-foods in Grocery Multiples - UK - March 2009

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