Retail giant Tesco is buying the corner shop group which owns the One Stop, Day & Nite, Dillons and Supercigs chains.

It gives us a chance to make a substantial step into the convenience market

David Reid, Tesco deputy chairman

Tesco, the UK's biggest supermarket chain, said the purchase of T&S Stores would boost efforts to expand in the convenience store market.

A number of T&S Stores will be converted to Tesco's smaller Tesco Express format, a move set to create about 1,400 jobs.

The deal is the latest move by a large retailer into the convenience market, following Co-op's purchase of the Alldays convenience store chain earlier this week.

All change

Tesco is paying �377m ($587m) for T&S's portfolio of more than 1,200 shops, a move which will increase its share of the convenience store market to 5%.

Under new ownership

"What's really attractive about this is that at one step, it gives us a chance to make a substantial step into the convenience market," said Tesco deputy chairman David Reid.

T&S owns 862 convenience stores through the One Stop and Day & Nite chains. Its Dillons newsagents and Supercigs discount tobacconists also have 343 outlets between them.

Tesco said it plans to sell the Dillons and Supercigs brands and convert around 450 other stores to its Tesco Express format, which currently has just 100 stores.

The remaining shops will keep trading under their current brands.

Good value?

The deal values T&S shares at 455 pence, a 27% premium to their closing price ahead of the announcement.

Grocery retailing has almost come full circle by coming back to the local store

Steve Gotham Verdict Research

T&S shares leapt 80p to 439p on news of the bid, while Tesco shares closed down 5.75p at 197.25p.

Tesco is also taking on T&S Stores' �153m debt, bringing the total value of the deal to nearer �530m.

But analysts looked favourably on the deal. Brokers Schroder Salomon Smith Barney (SSSB) said Tesco could "easily" double T&S's current operating profit.

"We consider this a very good move from Tesco," said SSSB.

Small is beautiful?

As supermarket chains have found it increasingly difficult to get planning permission for new stores, they have had to look elsewhere to expand.

"Within the food market the convenience segment is one of the fastest growing," said David Stoddart, retail analyst at Teather & Greenwood.

And by buying T&S, Tesco is not only getting hold of many retail sites, it is also gaining useful know-how in distributing goods to many small sites, Mr Stoddart said.

Tesco's move, preceded by the Co-op's purchase of the Alldays chain earlier this week, has shown that convenience stores are in demand.

"Grocery retailing has almost come full circle by coming back to the local store," said Steve Gotham, senior analyst at Verdict Research.

He said the main supermarket groups have to make acquisitions in the convenience sector as it would take too long for them to grow organically.

While some independent corner shops may close in areas near the supermarket-owned stores, Mr Gotham said shoppers should benefit from cheaper prices and better quality goods.