THE CASE FOR SMALL STORE FORMATS

Report
THE CASE FOR SMALL STORE
FORMATS
Presented by
Dr. David Rogers
DSR Marketing Systems Inc.
E-MAIL: [email protected]
Presented at
The 2014 Gravitec Development Conference
Clearwater Beach, FL
May 8, 2014
COPYRIGHT 2014. DSR MARKETING SYSTEMS INC.
1
WHAT ARE WE DISCUSSING?
• Small grocery store formats
• 8,000-25,000 sq. ft. (total area)
• Update from 2009 Gravitec Conference.
2
WHAT ARE WE DISCUSSING? (cont’d)
• Two (2) main genres of small formats:1.
2.
Gourmet/Natural/Organic/Perishables
Limited Assortment Stores
• But also “Blended” small store formats.
3
GOURMET/NATURAL/ORGANIC/PERISHABLES
• Balducci’s
• Natural Grocers by Vitamin Cottage
• Earth Fare
• New Seasons
• Fresh Thyme
• Sprouts
• Lucky’s Market
• The Fresh Market
• Mrs. Green’s
• Trader Joe’s
4
LIMITED ASSORTMENT STORES
• Aldi
• Ruler
• Grocery Outlet
• Save-A-Lot
• Lidl?(not yet!)
• Valuland
5
BLENDED FORMATS
• Bottom Dollar
• Smart & Final
• Dollar General Market (?)
• Walmart Express
• PriceRite
6
SMALL STORE FORMAT POSITIONING
Balducci’s
Earth Fare
Mrs. Green’s
New Seasons
The Fresh Market
Higher
Pricing
Lower
Pricing
Aldi
Dollar General Market
Grocery Outlet
Ruler
Natural Grocers/Vitamin Cottage
Trader Joe’s
Walmart Express
Fresh Thyme (?)
Henry’s
Lucky’s Market
Sprouts
Bottom Dollar
Save-A-Lot
Valuland
PriceRite
Limited Selection
Wider Selection
Perishables Selection
7
RECENT GROWTH
• Together with Supercenters, they are the growth formats
in the U.S. supermarket industry.
• Accounted for 61% of the net growth in new grocery
stores, 2007-12.
• But the picture is “clouded” by Whole Foods.
• Progressive Grocer data: 2007-2012:-
8
STORES BY FORMAT: 2007-12
Format
2007
2012
Conventional
26,832
26,791
-41
Supercenter
3,038
3,861
+823
Limited Assortment
2,349
3,088
+739
Natural/Gourmet
2,199
2,650
+531
Warehouse
457
487
+30
Commissary
172
176
+4
34,967
37,053
+2,086
1,152
1,261
+109
TOTAL
Clubs
Change
9
SALES BY FORMAT: 2007-12 ($bn)
Format
2007
2012
% Change
Conventional
357.5
401.8
+12
Supercenter
141.7
148.4
+5
Limited Assortment
11.0
15.2
+38
Natural/Gourmet
17.7
28.5
+61
Warehouse
3.3
3.8
+15
Commissary
4.2
4.8
+14
535.4
602.6
+13
101.5
122.3
+20
TOTAL
Clubs
10
SUPERMARKET SALES BY FORMAT, 2012
Format
# Stores
%
Sales
%
Conventional
26,791
72
401.8
66.7
Supercenter
3,861
10
148.4
24.6
Limited Assortment
3,088
8
15.2
2.5
Natural/Gourmet
2,650
7
28.5
4.7
Warehouse
487
1
3.8
0.6
Commissary
176
+
4.8
0.8
37,053
100
602.6
100.0
TOTAL
11
LAS MARKET SHARES:
INTERNATIONAL COMPARISONS
% Market Share
2007
2012
Change
Germany
35.5
34.8
-0.7
Canada
N/A
36.0
N/A
U.K.
4.8
6.9
+2.1
USA
2.1
2.5
+0.4
12
REASONS FOR CONTINUED GROWTH
Demographic trends
• Aging of the population (distaste for large stores).
• Increased attractiveness of urban living (the “new
urbanism”). Large stores less feasible/necessary.
• Smaller households. Less need for product
selections.
13
REASONS FOR CONTINUED GROWTH (cont’d)
Lifestyle/social trends
• Increased health concerns, problems > natural/organic/
perishables stores.
• Increasing time pressures/disorganized lifestyles > more
quick, fill-in trips. Favor small formats.
• Concerns about food deserts in deprived areas.
14
REASONS FOR CONTINUED GROWTH (cont’d)
Income trends
• Falling real incomes > multi-store shopping patterns.
Favor LAS and other price formats.
• Cuts in SNAP and Unemployment Benefits programs.
• High gas prices dissuade long trips to large
Supercenters.
15
REASONS FOR CONTINUED GROWTH (cont’d)
Competitive factors/opportunities
• Low standards/unhealthy image/male shopper
orientation of U.S. c-stores.
• Mediocre perishables standards (and high prices) of
many conventional supermarkets, e.g. Dominick’s
“Fresh” stores.
• “Convenience” competition – for female shoppers - from
Drug and Dollar stores > forcing response.
16
REASONS FOR CONTINUED GROWTH (cont’d)
Online Retailing
• Online is reducing non-food margins which are key to
Supercenter economics, e.g. Carrefour, Tesco Extra.
• Online is also reducing attractiveness of large stores
which offer wide - but never comprehensive - product
selections….the Big Box Category Killers from the
1980’s are dying.
• Online growth favors small store formats as pick-up
points.
17
REASONS FOR CONTINUED GROWTH (cont’d)
Real estate issues
• Environmental/traffic/zoning resistance. Especially to
Walmart. Favors small stores.
• Continuing real estate glut providing easy, lower cost
development opportunities for small formats.
• Book, consumer electronics, music, office, toy sectors
are being decimated by Online retailing. End of the Big
Box Category Killer era.
18
BUT IMPORTANT CONSTRAINTS
• Limited selection > inconvenience of extra stop.
• Small formats need powerful, positive image
differentiation on one or more key dimensions for
success….targeted offerings.
• Many are also highly targeted demographically.
• Therefore, vulnerable to inadequate/weak site research.
19
IMPORTANT CONSTRAINTS (cont’d)
• Many failures (Fresh & Easy, Fresh Market closures,
Jewel’s Urban Fresh, Walmart’s Marketside, Mrs.
Green’s, Planet Organic).
• Typical of new growth concepts, e.g. Clubs in the 1980’s1990’s.
• Inadequate operational disciplines have hurt many small
formats – especially domestic LAS ventures.
20
IMPORTANT CONSTRAINTS (cont’d)
• Excessive SKU’s > inflated labor costs > inadequate
price differentiation.
• Small stores have limited sales volumes and fragile
economics.
• Lower volumes and profits per store have encouraged
excessively fast rollouts and “corner-cutting” on Site
Research.
• Reinforced by naïve senior management perceptions of
lower investment risks per store.
21

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