Are there too many grocery stores?
J.C. Penney, Macy’s and Sears have been closing stores in large numbers in an acknowledgment that there is simply not enough business to support their continued operation. Others in the consumer electronics, specialty apparel, and sporting goods channels have also shuttered stores in large numbers. Are grocery stores next?
The commercial real estate firm, CoStar Group, reports, via The Wall Street Journal, that the amount of retail space per person increased to a record 4.15 square-feet last year. Part of the reason for the expansion is that convenience stores, dollar stores, drugstores, e-tailers, mass merchandisers, supercenters and warehouse clubs all use groceries to drive more frequent customer traffic.
The amount of square footage for groceries should continue to expand in the near-term as Lidl continues its entry into the U.S. market and others, including Aldi and Dollar General, open stores in large numbers.
Lidl, the German discount grocery chain, expects to have 100 stores operating in East Coast states by the end of next year. The company has also been reported to be scouting locations in Ohio and Texas as it plans its national expansion.
Aldi has moved aggressively into California in the past year while ramping up store counts in key states such as Florida and Texas. The chain, which expects to have 2,000 stores nationwide by next year, is also investing $1.6 billion to expand and remodel 1,300 current stores.
Dollar General plans to open around 1,290 new stores during this fiscal year while remodeling or relocating 760 others.
While online currently represents a relatively small percentage of grocery sales, the number of consumers using these services is growing. Third-parties, such as Instacart and Shipt, have made it easier for chains like Publix and Whole Foods to offer online shopping. Amazon.com, Kroger and Walmart offer both home delivery and click and collect services.
Barclays Capital has found that 38 of the top 50 grocery markets in the U.S. will have too much space dedicated to food retail by next year.
“Everybody should stop growing,” Barclays analyst Karen Short, told the Journal. “It would make the whole industry much healthier.”
- Supermarkets Face a Growing Problem: Too Much Space – The Wall Street Journal
- Dollar General Corporation Reports First Quarter 2017 Financial Results – Dollar General Corporation
- Retail Store Closures: Apocalypse Or Repositioning? – CoStar Group
- Why is Walmart so concerned about Aldi and Lidl? – RetailWire
- Is one-stop grocery shopping coming to an end? – RetailWire
- Are chains cannibalizing their own in-store sales with e-commerce? – RetailWire
- Will online sales redeem struggling brick and mortar retailers? – RetailWire
- Will smaller stores and omnichannel pay off for Kohl’s? – RetailWire
DISCUSSION QUESTIONS: Are there too many stores selling groceries in the U.S.? Do you see recognition of the problem among grocery chains? How do you see the industry shaking out over the next five to 10 years?