Few people expected Waitrose to do well out of the recession. But profit is up 25%, it’s building 10 supermarkets a year, and now has plans to take on the convenience store market. No wonder property boss Nigel Keen is feeling so chipper

If you don’t live near a Waitrose, chances are it won’t be long before you do. Hitherto a far from ubiquitous player in the supermarket scene, Waitrose has its sights set on unprecedented expansion. Every year for the next three at least it will be spending £200m and building 10 supermarkets, as well as, for the first time, convenience stores. Ten years from now, it plans to have twice the number of UK shops, including 300 of the mini stores.

There is a huge group of potential customers we are not reaching because there isn’t a store near them. People should be able to enjoy good food wherever they come from

Nigel Keen, the group’s property services and property and development director, is the man responsible for overseeing this plan. And he has the experience.

“I started off at Tesco in the eighties,” says the 48 year old, sitting in his office in central London. “At the time they had a huge desire to be the number one retailer in the UK. I was fortunate to be pushed around from property acquisition to property management and planning to investment appraisal.”

So, he has the skills, but the real test of the expansion will be whether the group achieves its overall goal: to increase its 4% market share “significantly” over the next five years. “It’s no insignificant task,” he admits. “But I am confident we can do it. The next 10 years is going to be great fun for us.”

The roll-out of the convenience stores builds on steady growth of the group’s property portfolio over the last six years, which has involved opening an average of 20 supermarkets a year. This has resulted in a year-on-year growth rate of 12.5% - nearly four times the market average.

Waitrose bosses hope these figures suggest there is demand out there for more stores. Research by the John Lewis Partnership - Waitrose’s parent company - appears to back this up, showing that there are 6 million people that would shop at Waitrose but don’t have convenient access to a store. This is hardly surprising considering there are only 228 UK shops - compared with 2,482 Tescos, 872 Sainsbury’s and 400 Asdas.

“There is a huge group of potential customers we are not reaching because there isn’t a store near them,” Keen says. “People should be able to enjoy good food wherever they come from.”

Adjusting for austerity

“There is no doubt that two years ago consumer confidence was at an all-time low and Waitrose suffered a downturn in trade,” Keen admits.

With people trying to save money in tough times, Waitrose was never likely to be the first place they were going to turn to. Last year it was reported that Waitrose’s managing director had asked more than 1,000 of its suppliers to reduce their prices by 2% due to trading conditions. This followed John Lewis Partnership reporting a 26% fall in pre-tax profit to £269m for the year ending January 2009.

But the introduction of the Waitrose Essentials range - specifically designed for shoppers on a budget - has pulled the store’s financials back up. Over 1,400 new “everyday” products were launched in 2009 creating more than £500m of sales in its first year. The range is on course to hit £750m in its second year. Partially on the back of this, Waitrose reported in results for the year ending January 2010 that it is getting 400,000 more customers each week. The store’s gross sales had risen 9%, reaching £4.5bn, and operating profit had increased by £56.7m to £268.2m.

But why enter the convenience store market, until now dominated by Tesco Metro and Sainsbury’s Local? The firm’s main aim is to increase its geographical spread - and smaller stores are easier to tailor to different sized sites: “This allows us to have formats from 2,000ft2 to 50,000ft2 which gives us the flexibility to suit different store sizes and formats to different locations,” says Keen.

He adds that customer feedback in the four test stores has been good. Located in Bristol, Nottingham, Crouch End in north London and Oxted, Surrey, the stores were designed to test performance in central London, the suburbs, provincial towns and university towns. “The customer feedback and financial data has been excellent,” says Keen. “Sales figures so far are up 10% on what we were expecting.”

Work up for grabs

The opportunities for the construction industry are potentially massive. Since 2007, over £200m a year has been spent on developing Waitrose’s property portfolio and Keen says this rate will remain steady over the next three to four years at least, to deliver projects worth between £1.5m and £20m. Most of this work is still up for grabs.

To build 300 new convenience stores, 30 next year, is a mighty project for little old Waitrose to pull off

But there’s a catch. Although there are plenty of contracts to be won, Keen admits he has been consistently impressed by his current list of contractors: Bowmer & Kirkland, RG Carter, RG Group and Wates. But, he stresses, he is also open to new firms with fresh ideas and - as the convenience market is so new to Waitrose - now is a better time than ever to approach the retailer: “To build 300 new convenience stores, 30 next year, is a mighty project for little old Waitrose to pull off. That’s a change to our formula and we are always looking for new ways of creating value.

“My advice to people on the outside? Don’t just send me a piece of marketing material through the post or in an email. There are plenty of other ways to get in front of my team. Think about industry events and networking opportunities where people can talk face to face.

Going global

If you are off to Dubai in the next few months, it’s worth looking out for the iconic green and white out there too. Two stores opened there earlier this year and a third is due to open in Bahrain in December.

“It’s early days for us internationally” says Keen. “It was a brave step to transport the Waitrose brand abroad.

“We use local supply chains for the international projects which are stores of about 20,000ft2 - core supermarkets, not convenience.

“The desire is to continue growing abroad but carefully. We don’t have any other international areas other than the Middle East earmarked at the moment. We are being cautious of the world economy and want to make sure we trade well in key areas rather than trying to grab every opportunity that exists.”

“Firms need to demonstrate what they can do differently from our incumbent suppliers. I want to hear about innovative approaches to projects, engineering solutions, new ways to tackle environmental and sustainability issues.”

He may be tough when it comes to getting the right people, but Keen wants to be seen as a good client: “The cycle we’re in at the moment means it’s dead easy to get good value for money and to get the best people working on your projects. The real test will come in the upturn. Being a good client means keeping your supply chain loyal when times are good.

“Our strategy is to make sure the supply chain recognises the value we bring during a downturn to ensure we are still seen as an important client when things improve. Also, pitching the right work at the right level is vital. Just because large contractors will take smaller jobs now, it doesn’t mean they’ll be keen to do them in the future.”

And does he think his existing supply chain will stay loyal? A long pause: “I think they will. I hope they will. But no doubt someone will disappoint me.”

Perhaps the next 10 years won’t be all fun after all.

Building is hosting a supermarkets conference in London on 14 July. For more information go to supermarkets.building.co.uk