Convenience Stores: Surging demand for sites is putting upward pressure on leasehold and rental values in the convenience store sector, writes Gretchen Friemann
Superquinn is the latest supermarket giant in the country to diversify into the lucrative convenience store market and its decision to sink €20 million into the roll-out of its Superquinn select network underscores food retailers' moderating demand for large-scale sites in favour of smaller outlets.
Property experts claim the surging demand for new stores from both the established convenience shop brands and the major supermarkets has made this one of the fastest growing retail sectors in recent years and they predict the upward pressure on leasehold and rental values will continue for the foreseeable future.
Mr Michael Conroy, associate director in CB Richard Ellis Gunne's retail department, claims freehold values on well-located sites of between 278-929 sq m (3,000-10,000 sq ft) have more than doubled over the last five years while rents have risen by 25 to 50 per cent. In the Republic's "cash-rich and time-poor society, the convenience store is key", claims Mr Conroy. And one look at the sales figures for the dominating brands in this sector confirms that consumers are increasingly abandoning the traditional once-a-week shop at the supermarket for the pricier and more convenient option of running down to the local store.
For most people living in an urban environment, dashing down to the shop probably requires no more than a 10-minute walk these days, such has been the pace of growth from the three major companies whose brands are now a ubiquitous feature in almost every village and town throughout the country.
Between ADM, which operates the Londis and Londis Topshop brands, together with BWG, which owns the Spar franchise, and Musgraves, which has the SuperValu and Centra brands, there are more than 2,000 convenience outlets in the Republic.
In 2002, sales for the three companies' totalled €3.5 billion.
The Cork-based Musgraves group, which controls 25 per cent of the market share in the food retailing industry, accounted for the bulk of this figure with its SuperValu stores turning over €1.55 billion while Centra had sales of €750 million.
But the predominance of these companies is now set for a radical shake-up as the high volumes and profit margins on convenience stores offers the supermarket chains a welcome avenue for growth after years of battling against the German discounters Aldi and Lidl.
According to Superquinn's deputy chairman, Mr Eamonn Quinn, "the convenient store format generates higher volumes and that's what it's all about in this business".
The company's decision to roll-out 10 stores over the next two to three years represents the greatest commitment yet to the convenience sector from a major supermarket chain.
While global retailing behemoth, Tesco, operates two convenience-style stores on Baggot Street, it is yet to open the successful Tesco Metro format here, although the company has reportedly hired chartered surveyors to seek out suitable sites.
Dunnes stores still only operates two convenience stores, one in Dublin's South Great George's Street and another in North Earl Street. At the launch of the outlets in 2001, the company indicated it would expand its smaller format stores to other parts of the country depending on the availability of sites.
Marks & Spencer unveiled its convenience brand, Simply Food, last year in Dún Laoghaire's George's Street and has since opened a further two outlets in Clarion Quay, in Dublin's IFSC and in Naas town centre.
Mr Larry Brennan, a director in HOK's commercial property division which acted for the UK retailer, claims the company is likely to further grow the Simply Food network and says the surge in new housing and neighbourhood developments offer "plenty of room for growth" for all the convenience brands players.
The surge in new housing in the Naas region was a significant factor in Marks & Spencer's decision to locate there.
According to Mr Brennan, the base value for the purchase of a 929 sq m (10,000 sq ft) retail outlet is around €500 per sq ft while rents are typically €20 to €25 per sq ft, although these can rise significantly higher for developments in prime catchment areas.
Superquinn's first convenience store will be the anchor tenant in the Charlesland Centre in Greystones, where agent CB Richard Ellis Gunne is quoting rents of over €55 per sq ft.
Mr Quinn said although the company owns 18 of its 19 stores it will happily accept leaseholds to secure the right sites.
The company declines to reveal the sum reserved for purchasing its Superquinn Select outlets but, judging by the rents on the Charlesland Centre and the increased competition for suitable retail sites, this is unlikely to be a cheap investment.
Despite these high overheads however, the supermarket chain will charge the same prices as it does in its larger stores. This ability to maintain price parity across its retailing empire may be a source of unease for the established convenient brands where prices are often markedly higher than large supermarkets. A recent study by the Director of Consumer Affairs, Ms Carmel Foley, showed huge variations in the cost of over the counter medicines with both chemists and supermarkets coming out cheaper than convenience stores.
