Tesco eats up corner shops in threat to local traders

The supermarket giant Tesco took another leap towards dominance of Britain's food shopping yesterday by buying the country's second- biggest chain of corner shops – a move critics said drove another nail into the coffin of independent traders.

Tesco, which already has the principal 18 per cent share of the supermarket trade, paid £377m for T&S Stores, which has 850 convenience store outlets, mainly in the Midlands but also in the South and in the North-west. More than half are to be converted into its Tesco Express format, which has previously been restricted to petrol stations.

The move extends a trend by the big supermarket chains to invest in what is called the "C-store sector" after years of developing out-of-town superstore sites, which have now either reached saturation point or come up against opposition on environmental or planning grounds.

Analysts said the move would restrict choice for the consumer by putting pressure on independent retailers. Steve Gotham, senior retail analyst at Verdict Research, said consumers would now expect the levels of perishable goods – such as fruit and vegetables and bread – and pricing that were characteristic of Tesco but could not always be matched by independent shops. He said: "Many of these are located in the typical shopping parade of a few shops and may include an off-licence and a greengrocer. These will suffer because people will gravitate towards Tesco. The result will be a loss of local colour and diversity.''

Lucy Michaels, of Corporate Watch, a campaigning environmental group, said the development was "very worrying ... This will reinforce the consolidation of the market, it will restrict consumer choice and will affect smaller business.'' She said that because of Tesco's regionalised distribution system, the stores would be less likely than the small independent retailers to sell produce from local suppliers. "There is no substitute for a vibrant local economy based on local traders,'' she said.

The Association of Convenience Stores said totally independent stores, rather than other chains such as Spar, would be unable to compete with the buying power and distribution system of Tesco, but stressed that the deal showed the buoyancy of the total market. A spokeswoman said the move was necessary for Tesco to reach "critical mass" in the corner shop market.

Tesco rejected the concerns. David Reid, deputy chairman, said customers would benefit from "better ranges and better prices".

T&S Stores is based in Walsall in the West Midlands. The purchase is of all its 1,200 shops, but Tesco will sell on its 200 Dillons newsagents and 130 Supercigs discount stores.

About half the remaining stores, which trade as One Stop or Day and Nite, will be converted into the Tesco Express format, which already has 100 outlets. The rest will continue to trade under their existing names.

Most Tesco Express shops are substantially larger than the typical T&S outlet and Richard Perks, analyst at Mintel Retail Intelligence, said Tesco's effectiveness in the smaller outlets remained to be seen.

The deal takes Tesco's share of the £20bn convenience store market to 5 per cent, the big-gest of the top supermarkets, but behind the Co-operative Group, which bought the Alldays chain on Monday, and the franchise business Spar.

Shares in T&S rocketed 22 per cent after the deal was announced, but those in Tesco dipped 5.75p to 197.25p.