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TCC Global

The future of retail - partnerships?

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13 Sep 2021

Partnering for Growth

Seb Hill, Managing Director UK&I

One of the key themes emerging in UK grocery right now is that of partnerships. As supermarkets battle with excess space and look to cut costs, a common strategy being adopted is transitioning counters, non-food space, services, and catering to third parties. What can we learn from this strategy and where next?  

Back to business as usual 

After a tumultuous period for UK grocery retailers during 18 months of the pandemic, we have seen many long-term underlying trends halt or even be reversed. Examples would include discounters seeing declining market share for the first time in living memory and large-format superstores and hypermarkets actually being seen as an asset. rather than an albatross around the neck of the major supermarkets. 

However, there are now signs of normality returning: discounters are resuming store expansion and market share gains, online grocery has started to moderate in terms of growth and the major supermarkets are now turning their attention back to what they do in terms of revitalising their larger stores. So, what are the problems? 

Stores are too big:  

What were once very profitable non-food categories like toys, electronics and media have become less lucrative, not least because they can be fairly labour intensive to maintain in terms of housekeeping and replenishment. As sales area afforded to these categories has been reduced, surplus space is being created, particularly on mezzanine areas which have become something of a ghost town in in many stores. The fact that Sainsbury's, Tesco, and Asda are also closing counters and/or instore bakeries means that further redundant space is being created. While some retailers seem content just to board up the redundant areas and merchandise in front of them, one could argue that this space could be put to more productive use. 

Not enough differentiation:  

The phrase ‘reasons to visit’ is on the lips of many supermarket executives as they realise that they need to provide a level of differentiation that will make it worthwhile for shoppers to cross the road to visit them rather than going to Aldi or Lidl. While they there are several organic ways they like that that they can improve their appeal and extend the number of instore facilities, this can often be expensive, so many retailers are looking to outsource this differentiation and provide shoppers more reasons to visit.  

It would of course be remiss of us not to mention at this point that tcc’s loyalty campaigns are designed for this exact purpose! Driving frequency and basket size while creating a real point of difference is what we do.   

Calorie shift: One pre-pandemic trend that is set to return is that of the gradual shift of calorie consumption from in-home to out-of-home. This has been underway for many years now and supermarkets have tried to tap into this trend by opening their own foodservice concepts or inviting in third-party operators like Subway and McDonald's. As the out-of-home consumption trend returns, there is a clear motivation for supermarkets to continue to raise their game in terms of food service provision through partnerships. 

Profits under pressure:  

With competition intensifying, there has also been an accompanying pressure on prices. Most of the major supermarkets are trying to narrow the gap between themselves and the discounters, either explicitly through price matching schemes or implicitly through reducing the price of key items in categories like produce and protein. 

This has put downward pressure on margins and supermarkets have therefore sought to reduce costs. One of the quickest ways of doing this is by reducing headcount, although we have seen in the past that this can sometimes be done too extremely, detrimentally impacting availability, experience, and service levels. 

The solution - Growth through collaboration 

A solution being adopted by many supermarkets is to pass off floorspace or instore services to third-party operators. This has long been the case in areas like pharmacy, opticians, photo processing, and dry cleaners, where operators like Vision Express, Lloyds Pharmacy, and Max Spielmann have been invited in to take over the running of services previously operated in-house by the supermarkets. This maintains the level of service, while at the same time transferring payroll to a third party and also generating rent. 

The same logic is now being applied to other parts of the store, such as food counters, instore hospitality, and even entire general merchandise departments.  

Partnership strategies 

General merchandise 

As we have already discussed, the major supermarkets have had to confront the fact that their stores are too large and that some general merchandise categories have become unprofitable for them to continue to operate in any meaningful way. Looking at this in another way, it could be suggested that supermarkets have never really achieved credibility in some non-food categories that they had achieved in areas like clothing and homewares. 

In other categories like electronics, DIY, sports, and toys, there has been a great deal of impetus over the last couple of years in terms of retailers seeking partnerships to bolster their credibility in these areas whilst at the same time reducing headcount and passing the responsibility for staffing, replenishment, and housekeeping to external retailers. 

There have been a few examples in fashion, with Sainsbury's hosting concessions from Oasis and Tesco briefly hosting Arcadia brands such as Burton, Dorothy Perkins, and Evans, but these sadly bit the dust alongside the demise of Arcadia itself. In general terms, though, the major supermarkets through their brands F+F, George, Tu, and Nutmeg have generally preferred to keep this department in-house, as margins are still pretty good thanks to solid demand and low-cost sourcing overseas. 

In electronics, we have seen Tesco partner with This in itself is an interesting innovation, as it marks AO’s first expansion into physical retailing. In sporting goods, the notable collaborator here is Decathlon, which has partnered with both Asda and Tesco to open sizeable instore departments as well as a smaller branded aisle to offer a decent selection of largely private label sporting items. In some cases, such as Asda in Stevenage, this has involved the partitioning of an entire section of the store and transitioning to Decathlon with separate checkouts. In Tesco in Cardiff, however, the supermarket has managed to offload its troublesome mezzanine area by giving that space to Decathlon instead. Supermarkets have never really compellingly sold sports products, so this partnership creates a very mutually beneficial solution whereby the food retailer offloads space and payroll to Decathlon whilst giving shoppers another compelling reason to visit. 

In toys, a notable partnership has been between Asda and The Entertainer. Although still in a trial phase, the initial pilots such as Watford are very impressive indeed with great merchandising and a very experiential proposition that appeals to parents and children alike. In a market such as toys where there are very few specialist players remaining, having these more enjoyable instore areas will benefit both The Entertainer and Asda.  

Asda has also pioneered another partnership with B&Q, the home improvement retailer. Again, this is of mutual benefit as Asda gets to achieve differentiation and utilises excess space while B&Q’s parent company Kingfisher aligns with their objective to be in more urban and suburban locations closer to where people live rather than being isolated on remote retail parks. 

What does good look like here? 

  • Exclusivity – no other supermarket has the same partnership, thus driving differentiation 

  • Demarcation – a clearly identifiable and visually signposted instore area 

  • Deduplication – removal of the supermarket’s own ranges in the relevant category 

  • Authority – the creation of a credible, narrower range by the guest retailer 

  • Trip-driver – does the new department create ‘reasons to visit’ 

Food counters 

Except for Morrisons and to some extent Waitrose, most of the major supermarkets have been taking the axe to their food counters, citing unprofitability and shifts in shopper behaviour as reasons for their closure. In many cases, these counters have been simply boarded over with millions of pounds worth of dormant equipment left behind them. Some counters have been switched to self-service such as deli in Tesco, while others have been replaced by third parties such as sushi counters, Polish food counters, and halal meat counters. It seems likely that Sainsbury's will partition off its counters and instead merchandise regular grocery ranges like free from and world foods in front of them. 

Tesco has been piloting the use of third-party butchers counters in a couple of its stores and has also flipped some of its meat counters to halal counters. Sainsbury's, Asda, and Tesco have also deployed sushi counters, either operated by third-party franchises or by high street brands like Yo Sushi. Asda has also embraced the zeitgeist with the opening of a Veelicious vegan counter in its supercentre in Watford. These types of partnerships have a number of benefits. Not least, flipping space to third parties reduces headcount and also generates rental income. By productively using the dormant space, shopper perceptions are maintained, while differentiation and reasons to visit are also kept up. 

What does good look like here? 

  • Exclusivity – the impact of partnerships is limited if several supermarkets all have the same sushi counter partner, for example 

  • Strength in depth – the new ranges need to be extensive enough and different enough to similar ranges elsewhere to make visiting the counter worthwhile 

  • Efficiency – the new counters should repurpose existing space and equipment where possible 

  • Incrementality – does the new counter drive extra spend? Or is it cannibalising sales from elsewhere in the store?  

  • Friction – can shoppers use the store’s main tills, or do they have to pay separately? 


As we have already mentioned, the shift in calorie consumption from in-home to out-of-home is set to resume with gusto and, with this in mind, many supermarkets have been collaborating with external hospitality and catering providers to use up excess space and augment their shopper appeal. The high street bakery chain Greggs has appeared in many Asda and Tesco stores, while Tesco is also hosting the more upmarket specialist Pret into a few of its stores in the London area.  

Sainsbury's has forged a partnership with Boparan Restaurant Group, which has seen the introduction of Carluccio's cafes and counters into a couple of stores as well as the total rejuvenation of its food court area in its Selly Oak superstore. The new ‘Restaurant Hub’ features brands such as Slim Chicken, Ed’s Diner, Carluccio’s, GBK, and Harry Ramsden.  

Asda, meanwhile, is beginning to see the benefits of being co-owned by forecourt specialist EG Group. EG is the UK master franchisee for brands such as Cinnabon and Sbarro, so as well as rolling these concepts out to its petrol station network, Asda has also recently introduced Sbarro and Cinnabon counters to a store in the Midlands. This is expected to be the vanguard of a more substantial roll-out of these and other concepts across the Asda network.  

Morrisons stands out from the crowd in this area, as it has chosen to develop its own in-house foodservice concepts rather than involving third parties. Although this requires more substantial investments and still maintains payroll in-house, the return on investment is potentially much more significant if these concepts prove successful. 

What does good look like here? 

  • Exclusivity – the development of inhouse concepts or the use of exclusive franchises can generate differentiation, repeat visits, and shopper loyalty 

  • Integration – if the hospitality offer is too separate from the main body of the store, the chances of diners becoming shoppers (and vice versa) can be diminished 

  • Loyalty – can spending on food service be integrated into the host retailer’s loyalty scheme? 


Gone are the days when the supermarkets had a voracious appetite for operating their own auxiliary services, such as key-cutting, photo processing, dry cleaning, and so on. Instead, many of these instore services have been switched to providers like Timpson, Max Spielmann, and Johnson's. Supermarkets have become more adventurous in terms of the service providers they invite into their stores, with Tesco, Morrisons, and Asda opening barbershops either inside their stores or in pods in their car parks. Supermarket car parks have become home to other service providers such as carwashes, clothes recycling operations and automotive companies such as We Buy Any Car. Again, these developments help use up surplus space as well as generating additional footfall by service users who will hopefully go on to spend some money in store. 


It seemed curious that, in an era when department stores are struggling, supermarkets are rapidly moving in this direction, becoming large host buildings that are home to a variety of third-party retailers and foodservice concessions that fit in around their core grocery and GM ranges. This is thoroughly aligned to the general direction of travel seen in grocery retailing around the world, where the realisation that stores are simply too big is leading many retailers to repurpose their floor space to reduce costs via slimmer headcount and by generating rental income through inviting collaborators into their space. 

While this cost-cutting and revenue generation is utterly understandable given the razor-thin margins available to most supermarkets, there is a tinge of regret around the fact that many of them are closing service counters, as this reduces differentiation and overall shopper perceptions. The contrary argument is that the economics of service counters had become unsustainable, and therefore supermarkets are obliged to find a more rewarding use for these spaces. 


The deployment of third-party concessions in food counters, food service, and general merchandise is, therefore, an eminently sensible move, as it theoretically should beneficially impact dwell time, footfall, and differentiation.  

We sense that this narrative has only just begun and that there will be many more examples in the months and years ahead of innovation and growth through partnerships. The reality is that the ‘build it and they will come’ philosophy is redundant, and retailers are having to work harder and harder to attract shoppers into their stores.  

At tcc we have a track record in providing greater football and higher average spend, tcc’s capabilities can create differentiation and ‘reasons to visit’. Get in touch  to find out how.    


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