Somerfield has become the latest supermarket to state its claim on the forecourt sector, following an acquisition of 140 Texaco sites for £90m. But as Forecourt Trader went to press, Somerfield announced that it was to sell these sites on to Palmer Capital Partners and Deutsche Property Asset Management, who will develop the forecourts and lease them back to Somerfield for 20 years.
The new owners will expand the portfolio from its current 83,000sq ft to about 250,000sq ft. The forecourts and shops will either be refurbished or totally rebuilt. The shops will be rebranded as Somerfield Essentials, while the Texaco brand will remain on the forecourt. The value of the property is estimated to increase to £225m after redevelopment.
It is understood that Palmer and Deutsche have been granted preferred bidder status for the properties, and the transaction may not be completed until June.
But Palmer will own the property and lease it back to Somerfield for the supermarket to operate. “Palmer will enlarge the store and we’ll take them over as and when they are available to refit,” said a Somerfield spokesman. “Most of the Texaco sites are kiosk sites and very suitable for development as larger convenience stores. They are likely to become part of the Essentials business going forward.
“This is a sound way of developing the business in partnership with property experts, and gives Somerfield a way of extending the Essentials brand quickly. We have a great transient offer with Essentials, which works well in the forecourt format. We have real strengths in providing a convenience offer and a strong range of fresh, grocery and hot food to go.”
Somerfield already has a small presence in the forecourt retailing market with 46 forecourts in operation – 27 of which are Somerfield-owned and 19 are joint venture sites.
Of the joint ventures, 18 are with Total, and the other a one-off venture with Texaco. Of the 27 Somerfield-owned sites, seven were picked up along with about 130 Safeway stores from Morrisions and are Somerfield branded; seven were existing Somerfield branded sites; one is Esso branded with a Somerfield shop; and a further seven are BP branded with Somerfield stores. Five were bought from Aberness last year and all of these have Mace shops, with four branded BP, and one branded Shell.
These five sites are currently being reviewed to find the most appropriate format, but in the mean time it is “business as usual under the Mace fascia,” according to a Somerfield spokesman.
It’s unclear what impact the Somerfield deal will have on the industry, but it will slightly increase the supermarkets’ share of the market. Currently supermarkets have about 30-31% of the fuels market in the UK, rising by 3-4% in the past year. Arthur Renshaw, UK & Ireland sales manager at Catalist, said: “If Somerfield is going to take 140 top-line Star locations, this deal could increase the supermarket’s share by a further 1.5-2%. The Star locations have been weeded out over the past few years so there’s not that many that aren’t very good anymore. Somerfield will have 140 4m-litre-plus sites so that’s quite a lot of volume.
“Somerfield is going to be a minor partner in the hypermarkets, but it will be number five now instead of just not in the running.
“In the past 12 months Somerfield has been really acquisitive – it’s been buying stuff all over the place,” added Renshaw. “So with this Texaco deal, it puts Somerfield very much into the position of Morrisons before it took over Safeway – except the portfolio that Somerfield has got is really spread – they’re not all hypermarkets. Somerfield is going to have a real cross section of every sort of petrol station from big supermarket sites to quite small forecourts on the edge of a town. It’s going to have its work cut out putting all that together.”
This isn’t the last we’ve heard of consolidation in the forecourt convenience retail sector either, according to Ray Holloway, director of the Petrol Retailers’ Association. He said: “There’s potentially some really exciting developments going to take place on forecourts in the UK. There’s no shortage of buyers for the convenience retailing sector – it’s a sector that’s growing faster than high street convenience. I don’t think there’s any shortage of investors for that type of business.
“Oil companies should really leave retailing to the retailers. For instance, I don’t think Total knows what its Bonjour offer is. Is it snacking on the move for a transient motorist or is it for a local resident? The offer is confused and I think that is why it won’t do as well as Total would hope.” Holloway added that Somerfield would get far more out of the Texaco assets than Texaco would have done. “I think it’s a sensible decision and I applaud the oil company for taking it,” he said. “I’ve seen a huge number of different offers from Somerfield and there’s a challenge here for Somerfield to demonstrate that it can actually operate and improve this type of business. We haven’t seen it done before, we just have to hope that Somerfield is up to the task. My own view is that it is. Well done Texaco, sensible decision; come on Somerfield, let’s see how you do it.”