Half year review of the Retail market

At the start of 2017, the grocery market was taken by surprise by the announcement of Tesco’s proposed takeover of Booker Group for £3.7bn. The deal completed in May 2018 but sent tremors throughout the market which resulted in Sainsbury’s and Asda announcing their proposed merger in April 2018. 

The consolidation didn’t end at the major grocers, as this trickled down into the convenience market too. The shock announcement of Conviviality plc entering administration led to their retail arm, including brands such as Bargain Booze and Wine Rack, being acquired by Bestway. The CMA also recently cleared The Co-operative Food’s acquisition of Nisa. 

Consolidation has also shaped the petrol filling station market which recently saw its second largest independent operator, Motor Fuel Group’s (MFG) acquire the then-largest independent operator, MRH, in a £1.2bn deal. Both companies have been unable to participate in the market due to CMA rules. 

Whilst this may have taken some froth out of the market, the Retail team at Christie & Co continues to experience other highly acquisitive group operators in both the convenience and petrol filling station markets. Whereas the largest operators are heavily involved in M&A activity, smaller group operators are preferring to acquire individual or small packages where sites can be easily absorbed within an existing network. 

Predictions
As part of Christie & Co’s Business Outlook 2018, published at the beginning of this year, the team shared their market predictions. Now reflecting on those forecasts at the half year, some of the predications are transpiring as expected and some are not.

There was an expectation that the major grocers will continue to expand into the petrol filling station market through franchises or supply deals. This was the case in 2017 with the likes of Sainsbury’s, Euro Garages, Co-op and MRH. However, these partnerships have had mixed results and further moves seem to have withered away as their efforts have been focused into M&A activity. 

Retailers continue to invest heavily in existing operations as they look to increase the profitability of their existing estate while consumer habits continually evolve. 

With recent government announcements and plans to move towards a cleaner environment, there has been increased research and development into the electric vehicle and alternative fuel market. We have seen major oil companies acquire electric charging companies as they look to complement their traditional fuel offering, the most recent example being BP’s purchase of Chargemaster for £130m – a sure indication that the oil companies are taking alternative fuels very seriously in the UK.

From the team’s market insight and experience, it was predicted that top independents will focus on growth in the short term but may favour selective single acquisitions where sites are better than those already owned, leading to a potential real estate churn in 2018. Whilst there have been continued single site acquisitions by group operators in the petrol filling station market, the anticipated real estate churn has yet to commence, but expectations are still high that this is on the horizon.

Key transactions
In a busy start to the year, Christie & Co handled some notable deals across the UK. Some of the most significant transactions being; the sale of Bathway Service Station in Bristol on behalf of Flying Visit Ltd to BP for conversion to an M&S Food site, the lease of Parry’s Supermarket in Liverpool which was sold off a guide price of £1m,  Warren Wood Service Station in Buckhurst Hill which was purchased by Rontec, and Dunswell Service Station in Hull which was sold to The Sewell Group.

Wyevale Garden Centres
During the spring, Christie & Co announced its appointment on the potential sale of the Wyevale Garden Centre business by Terra Firma. This high-quality portfolio of 145 garden centres ranges from horticultural centres to major leisure destination venues. Following the launch in May, Christie & Co has received a significant number of offers for all or part of the Wyevale Garden Centres business from national, regional and financial operators as well as local entrepreneurs. The first deal of eight sites to Blue Diamond was announced at the time of writing and we expect to make further announcements as the year progresses. 

Christie & Co will release its 2019 Business Outlook, presenting an annual overview and year ahead forecast of all of its sectors including Retail, in January 2019.