Supermarkets downsize for convenience

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Supermarkets downsize for convenience

  1. 1. July 6, 2014 Supermarkets downsize for convenience By Andrea Felsted, Senior Retail Correspondent As traditional supermarkets face increased competition from nimbler rivals, one response is for them to shrink the size of their stores. In the UK this year alone, Tesco , J Sainsbury and Wm Morrison will open about 750m sq ft of convenience store space. “The race for space has not ended, it has evolved,” says Dave McCarthy, analyst at HSBC, who has been a vocal critic of the industry’s unprecedented expansion. Grocers are opening smaller stores to tap into changing shopping habits, with consumers shopping more locally and frequently. Indeed, some analysts even suggest that the growth of the German discounters is driven not just by price, but by convenience, given their smaller footprints, limited product ranges, and town centre locations. Aldi, meanwhile, is trialling a convenience store in London. “There is a misconception,” says Mirko Warschun, a partner at AT Kearney. “Everyone thinks the discounters are winning just because of price. Yes, it is partly due to price, but it is also due to convenience.” It is not just in the UK that the move into smaller formats is taking place. Asia has the biggest convenience store market, according to Planet Retail, and this is expected to expand further over the next five years. In France, Carrefour and Casino have opened smaller units and Carrefour recently acquired the French arm of Spanish discounter Dia to extend its convenience footprint. Walmart , a pioneer of the hypermarket, has opened almost 400 smaller stores, comprising 367 of its 40,000 sq ft neighbourhood markets and 21 of the 15,000 sq ft express stores. While underlying sales at core US stores are going backwards, neighbourhood markets have enjoyed almost four years of unbroken sales growth.
  2. 2. Walmart said in February it would open up to 300 smaller stores this year, and Kantar Retail forecasts that in the next five years, Walmart could have more than 1,000 neighbourhood markets, and close to 500 express stores, together accounting for $27bn of sales. However, Jim Prevor, who runs the Perishable Pundit blog, points out that the economics of operating smaller stores in the US can be more challenging than in the UK, because of the prevalence of small stores run by families, often from ethnic communities. The are able “to beat the big guys with these small stores, because you have the whole family working there. Its very difficult to compete with that”.

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