A trend that has become increasingly prevalent among the global grocers has been the focus on smaller footprints.

A trend that has become increasingly prevalent among the global grocers has been the focus on smaller footprints. The largest grocery retailers seem to have recognised that the days of big-box hypermarket growth are coming to an end. In France, Carrefour continues to struggle with its key hypermarket format, while in the US we predict that Walmart will reach saturation with its Supercenter format within the next decade. As a result, a whole host of major grocery retailers are now developing, introducing and expanding smaller store formats. Tesco, for example, operated just 168 Express format stores outside the UK in 2005, compared with 940 at the end of 2010.

Perhaps the most exciting market for small store development over the next year will be the US. Here, dollar stores and drugstore operators (such as Walgreens) have been expanding grocery ranges within their stores to cater for ‘food deserts’ in urban areas. Such areas have typically been overlooked by major retailers – former Walmart chief executive Lee Scott once said they were not “worth the effort”. Now, with the large store channel approaching saturation point, they are seen as attractive, relatively untapped, areas for future growth. Walmart now plans to enter such areas with its new Express format. Target, through CityTarget, and Meijer, with Meijer Marketplace, are following suit.

There are wider reasons why small format stores are likely to gain in importance across the world. The tough economic climate in developed markets has led to the slowing of non-food sales, while growing concentration means that large store sites are becoming harder to find. The latter point is already having an impact in emerging markets such as Thailand. Also, broader socio-demographic trends are increasingly pointing towards proximity and convenience over larger stores with their wide ranges and out-of-town locations.

Going small is not only a proactive way of growing sales, but also of defending market share against the rapid incursions of US dollar stores and drugstores. Nearlyall the major drugstore chains are adding perishable groceries to their mix and improving their private labels (for example, Walgreens’ Nice!), making them more credible alternatives to traditional supermarkets. With nearly three quarters of the US population less than five miles
of a Walgreens store, such shifts cannot be ignored by country’s traditional grocery retailers.

  • Rob Gregory, research director, Planet Retail. For more information contact us on:

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