[Image of: RetailWire Logo and Tagline (for print)]
 
[19 comments]

Are smaller stores a big opportunity for supermarkets?

May 27, 2014

Becoming the latest of several grocers testing smaller formats, Publix is reportedly working on a 20,000-square-foot prototype to serve seaside communities and college towns.

The Orlando Business Journal, which broke the news, said the concept would also enable Publix to compete with niche stores such as Trader Joe's and Walmart's smaller formats. Publix, which declines to comment, has an average store size of 40,000 to 60,000 square feet.

Within the ranks of pint-sized grocers are successful limited-assortment grocers such as Trader Joe's (average 10,000 square feet) and Aldi (averaging 15,000 square feet).

Among other grocers, Hy-Vee in April opened its fourth Mainstreet concept in Sioux City. At 14,000 square feet, the Sioux City location features a produce area with 70 feet of display, as well as a butcher shop and a 22-door freezer. It also includes a pharmacy and a cafe.

Mainstreet is portrayed as a mini-version of a Hy-Vee, which average 85,000 square feet. Tim Stupka, assistant vice president of operations for Hy-Vee's northern region, told KTIV in Sioux City, "We have pretty much everything those stores have, but we don't have as many varieties."

Late last year, Kroger began testing Turkey Hill Market, averaging 7,000 square feet, opening three stores in the Columbus area. The smaller store stocks staples like fresh produce, meats, dairy, as well as prepared, packaged and frozen foods. The concept is a bigger version of Kroger's c-store-concept Turkey Hill Minit Markets, which averages 4,000 square feet. Kroger's average store is 67,000 square feet.

"Shoppers want speed, they want fresh, they want convenience, and they want value," Craig Rosenblum, a partner at Willard Bishop told The Columbus Dispatch last November when the Turkey Hill Market tests started.

In the organic/fresh foods space, Sprouts stands out for its stores, which run from 20,000 to 27,500 square feet. Competitor Whole Foods' locations average 38,000 square feet, although it opened a 21,500 square-foot location last year in Detroit.

In July, Target will open its first 20,000 square-foot TargetExpress in its hometown market of Minneapolis, near the University of Minnesota campus.

Walmart is testing a 2,500-square-foot c-store-concept called Walmart on Campus aimed at colleges, but its big push in the smaller-size range is Walmart Express (averaging 15,000 square feet) that combines a c-store and grocery. It plans to add 90 to 100 Walmart Express stores this year.

FINANCIALS:     [NYSE:KR] [ OTCMKTS:PUSH] [ ]

Discussion Questions:

Should more traditional grocers be exploring smaller-format stores? Do traditional grocers have any advantages in opening mini-supermarkets over limited-assortment grocers and/or big box discounters?

While we value unfettered opinion, we urge you to show respect and courtesy for people or companies about whom you comment. Keep in mind that this is a public, professional business discussion. RetailWire reserves the right to edit or refuse the publication of remarks that we deem unsuitable. We may also correct for unintended spelling and grammatical errors.

Instant Poll:

How big is the small store opportunity for traditional grocers?

Comments:

Small format stores make a world of sense for both food and general merchandise retailers. They provide edited assortments aligned with the brand equity of the parent company. They also offer the retailer much more flexibility in terms of location strategies and site selection.

Most national chains have too much square footage devoted to large-scale prototypes. Full-line discounters like Walmart and Target have already figured this out, so it's not surprising that food retailers are looking at similar growth opportunities.

After all, why should TJ's and Aldi have this idea all to themselves?

[Image of: View Braintrust Panelist button]
Dick Seesel, Principal, Retailing In Focus LLC

Smaller format food stores are coming, like it or not. The idea of a smaller store that has mostly fresh and prepared items combined with a pick-up or delivery service for staples/replenishment items is attractive to a growing segment of shoppers. These shoppers want the convenience of being able to get what they need and not spend an hour looking for it.

[Image of: View Braintrust Panelist button]
Ron Margulis, Managing Director, RAM Communications

Since there are a number of shopping choices for consumers to make, there should be more choices in the types of stores too. So for those shoppers who use warehouse clubs, a smaller grocery store would be ideal for the items not available in the clubs. Shoppers who want only one-stop shopping can still visit the full line grocery store. Supercenters or hypermarkets are still another choice for shopping as is the Whole Foods, Aldi and Trader Joe formats.

It is choice, price, and variety that keep shoppers going to all kinds of formats for grocery shopping. The three major drug store chains are also selling groceries, and the c-store format has choices too.

[Image of: View Braintrust Panelist button]
Frank Riso, Principal, Frank Riso Associates, LLC

Small format stores make sense to me when you have an area that can't support a large format store, either because of real estate costs or population to support it. Nobody has an advantage because of who they are - they have an advantage if they do it well (Fresh & Easy - we hardly knew ye). I'm not sure these players are competing with a limited assortment store like Trader Joe's or Aldi's either.

[Image of: View Braintrust Panelist button]
Dr. Stephen Needel, Managing Partner, Advanced Simulations

Publix is on to something that speaks to efficiency of operations. A smaller format store makes a lot of sense in areas with surging populations like you get in college towns and beach areas. The fresh items and grocery basics are just what these shoppers are looking for, and in off seasons you don't have large inventories and high utilities to drain your profitability. I am surprised it has taken this long for retailers of all types to figure this out.

[Image of: View Braintrust Panelist button]
J. Peter Deeb, Managing Partner, Deeb MacDonald & Associates, L.L.C.

It appears Walmart might have hit on a winner with larger grocery chains looking at downsizing in strategic markets. Smaller versions in smaller geographic areas, or those serving a niche market, makes sense. Let's see where this goes from the talk to actually successfully being up and running.

[Image of: View Braintrust Panelist button]
Ed Rosenbaum, CEO, The Customer Service Rainmaker, Rainmaker Solutions

While "exploring" does not necessarily mean "exploiting" today's opportunities, the traditional grocery industry should throw their hats in the ever-changing ring around the marketplace. The hot new formats are smaller, tailored stores that were conceived via voids in the revising marketplace and changing consumer desires.

There's no big advantage in opening mini supermarkets over limited-assortment stores or big boxes unless you know why you are doing it. Planned evolution rarely comes from mere duplication.

[Image of: View Braintrust Panelist button]
Gene Hoffman, President/CEO, Corporate Strategies International

Let's look into the future a little bit. Center-store products are being offered more and more through alternative channels, be it online, home delivery or big box retailers. That leaves less and less boxes for the supermarket to sell. The supermarket has no competitive advantage against these alternative channels.

But they do have a competitive advantage when it comes to produce, dairy, frozen, meats and custom prepared foods. That is where they should focus. The less they need in the center, the less square footage they need. Smaller formats are inevitable.

[Image of: View Braintrust Panelist button]
Gene Detroyer, Professor, Independent

Small format stores are good for grocers and consumers. For the grocer, it allows them to really rationalize the SKU assortment while potentially driving higher operating margins by culling out SKUs that don't move or lower margin items. I assume the focus will be on staples and convenience of ready-made meals or meal replacements.

A big win for consumers, with convenience not only in location but also shop-ability.

[Image of: View Braintrust Panelist button]
Robert DiPietro, GVP Product Strategy & Business Development, Affinion Group

Many retailers are realizing that "big box" stores are becoming too expensive to build and operate. Cutting SG&A (Sales General & Administrative) is a major factor why even Walmart is rapidly expanding its smaller Express format stores.

However, while smaller is cheaper to operate, it is not inherently better in the eyes of the consumer. The toughest challenge of smaller format grocery stores is a differentiated selection which fits the local market shopping there. Trader Joe's is a good example of stores with highly differentiated assortment.

In the small grocery store format, traditional grocers will only be more successful over big box discounters if they can more effectively localize their assortment in ways that offer consumers convenience, fresh, value and choices that fit local taste.

And one more very important thing, the store shelves have to be kept stocked ... something that Walmart has been struggling with in many of its Express stores.

[Image of: View Braintrust Panelist button]
Chris Petersen, PhD, President, Integrated Marketing Solutions

Ditto what Gene says. I have 10,000 square feet of selling space; the center store takes up 70% of it, and only does less than 20% of my sales. It is about running a great perishable operation, as all other retailers are selling dry grocery at heavily discounted prices.

Trained meat men, and a high class deli-bakery is something the discounters will not invest in, so it makes perfect sense to downsize these stores in areas where great perishables are in demand.

The future is not in 100 feet of toilet paper, and Publix knows this. I believe it makes sense to do what they are doing.

[Image of: View Braintrust Panelist button]
Tony Orlando, Owner, Tony O's Supermarket & Catering

A store should be sized based on a volume forecast, for starters. The ability to have sales of $1 million or more per week in a 20,000 square foot store will not happen as customers will simply shop elsewhere.

There are only so many locations for a 50,000 square foot store. There are far more locations for a 20,000 square foot store. These smaller stores do not have to be limited selection, they can have full line coverage, but they should be adjusted to the specific market. Yes traditional grocers should be exploring a smaller format if their market area will support them. Large chains have the buying power and the ability to spread overhead cost which will make them more than competitive operating a smaller format.

[Image of: View Braintrust Panelist button]
W. Frank Dell II, CMC, President, Dellmart & Company

Each year, a larger percentage of my business is doing site location analysis for smaller format stores. The opportunities are endless, mostly fueled by rapid growth in college housing the gentrification of neighborhoods near the downtown of major metro areas.

The small format supermarket is a whole different animal and not all grocers have adapted. Hy-Vee, Walmart, and Whole Foods are just now catching on and they have a long way to go. Retailers in Manhattan, well, that's been a way of life forever. In order to be successful they need to be the kind of store that consumers will be doing their primary shopping in. Limited assortment and specialty stores can't pull this off. Parking is not an issue because traffic is pedestrian or public transportation.

We look for new, dense high rise housing, high incomes, and new street car lines. Low rise housing usually won't get the job done. Online shopping, delivery, and catering are a must.

David Livingston, Principal, DJL Research

Every grocer selling bicycles, lawnmowers, etc. should look at smaller stores. Honestly, when a store has room to stock 500 foam coolers (the ones that never disintegrate), they can operate with a smaller footprint. Traditional grocers should have an advantage due to purchasing power alone. Additionally, it might be that a smaller format would keep some of them from merchandising and shelving canned fruit 100 yards away from canned vegetables. I know you want to force us to walk the entire store, but some of you have gone bankrupt twice already using this philosophy.

Ed Dennis, Sales, Dennis Enterprises

I believe small stores may bring big opportunity for the supermarket business, but I cringe when the word "prototype" is invoked. That's an old-school term, from the era when geographic expansion was a career strategy for retail CEOs. Smaller stores must be tailored to each location, not rubber-stamped across the landscape. That means decentralized authority, empowered store managers, and a strong set of supporting resources from headquarters.

[Image of: View Braintrust Panelist button]
James Tenser, Principal, VSN Strategies

Since most of the aisles in large grocery stores are sparingly shopped, opening smaller-format stores where people can quickly buy staples, especially perishables, is a good idea.

People will still tend to shop at a large format grocer when needing to stock up on household products. As long as prices are competitive, for quickly picking up produce and perishables, stores with a smaller footprint offer more convenience and better customer service.

If smaller-format stores take advantage of customizing their atmosphere and selections to reflect the personality of the neighborhoods they serve, this could further increase their desirability.

'RetailRetell'

Yes, this is one of the waves of the future - smaller footprint stores. Here's why: 1. urbanization, 2. smaller households/families, 3. loss of general cooking skills.

First, cities are becoming more densely populated than ever. This is a US trend and a global trend. In fact according to the Brookings Institute, for the first time in a century, US cities have been gaining more (domestic) migrant population than suburbs.

Second, single person households are on the rise. People are marrying later, getting divorced, or not marrying at all. Birth rates among many groups are declining. The result is that overall household sizes are shrinking. We can look to see some McMansions turned into condos I bet.

Finally, many Millennials don't have the cooking skills that their grandparents had at their age. They have grown up eating prepared foods, pre-packaged foods and heat-and-eat foods. Add that to cooking for one - and you have the need for smaller footprint grocerant formats (cross between a grocery store and a restaurant with take-out foods).

[Image of: View Braintrust Panelist button]
Liz Crawford, VP, Strategy & Insights, Match Drive

Big box? Small box?

What's the consumer want?

Based on the Prosper Monthly Consumer Survey, and countless other market research findings, the top four criteria that Consumers choose are Price, Location, Selection, and Quality. Let's go with Location and Quality as the two items in which a Small box can hope to compete with their Big box cousins.

If we can buy into that thinking, it behooves us to ask "what are the other reasons that a consumer shops a particular grocer. The Prosper Monthly Survey offers respondents 20 other potential reasons that they may choose their grocer. Characteristics / Reasons that stand out include: Unique Products, Ethnic Foods, Prepared Foods, Store Appearance, Knowledgeable Associates, Deli, Trustworthy Retailer. There's more.

Do Aldi's and Trader Joe compete in those arenas? Of course they do.

These small box store have to have a unique selling proposition that resonates from the consumers' perspective. If traditional grocers believe that they are capable of making small-format stores work, and they are willing to let their management team think and act independently to make adjustments in these small box platforms, and thus avoid group think that is focused on the 50,000 to 100,000 foot box, go for it. There is money and profit to be made, as well as the opportunity to build brand loyalty along the way.

If they can't do that, stay on the porch, because the little dogs will eat your lunch.

[Image of: View Braintrust Panelist button]
Roger Saunders, Managing Director, Prosper Business Development

Yes, it's a definite opportunity for traditional grocers and, as cited by others, the movement is afoot. The key to success will be effectively managing the smaller space and ensuring that the assortment meets the needs of shoppers while not crippling the supply chain and/or increasing costs significantly.

I believe that the advantages of convenience, relevance, and market presence are well worth the investment.

[Image of: View Braintrust Panelist button]
Dave Wendland, Vice President, Hamacher Resource Group

Search RetailWire
Follow Us...
[Image of:  Twitter Icon] [Image of:  Facebook Icon] [Image of:  LinkedIn Icon] [Image of:  RSS Icon]

RetailWire's
Getting Started video!

View this quick tutorial and learn all the essentials...

RetailWire Newsletters