Non-food merchandising by grocers is continuing apace, but the announcement by Tesco that it is shelving 100,000sq ft plus of hypermarket developments sent shockwaves through the market. CBRE supermarkets director Chris Keen looks at the implications of the Tesco announcement.
The story is not quite as it has been reported in the press. Tesco was only referring to schemes of 100,000sq ft sales area, which is 140,000sq ft gross. It is exceptionally difficult to get planning permission for schemes of this size.
There have always been very few of them as a result. And they have never been the cornerstone of supermarket expansion, just the icing on the cake.
Asda reduced its upper size requirement some time ago without anyone batting an eyelid. Losing these stores is not going to do much to the grocery pipeline: supermarket development and acquisition activity continues to grow regardless.
The Tesco announcement has merely diverted attention from the real story underlying the current wave of supermarket expansion: the overall grocery floorspace growth and the proliferation of new trading formats.
In effect, because of changing customer needs, grocers now need a much wider spread of shop sizes and locations to serve local markets.
The traditional weekly shop is still occurring, but demand for more frequent top-up shopping, requiring more local convenience stores, is also growing or, more accurately, being cultivated by the big supermarkets to increase market penetration. And it is working.
Home delivery services may help, marginally, to reduce space pressures in markets with below-average grocery provisions but consumer resistance to the added delivery costs continues to severely restrict the market penetration that can be achieved via grocery home delivery.
The main stumbling blocks remain the logistics/costs and inconvenience of delivery for a high-frequency shopping activity. The problem is even more acute on the comparison goods shopping side.
For example, if a shopper goes to a high street or shopping centre and buys from four or five different shops, it is a single shopping journey. Sit at home and buy from four or five different websites and it generates four or five different delivery trips, all of which have to be paid for.
And if the goods cannot fit through a letterbox, somebody has to be around on multiple occasions and at uncertain times to wait in for goods to be delivered, a significant inconvenience in its own right.
And then there is the hassle of the inevitable returns. The commercial costs of multiple delivery trips will almost always cost the customer a lot more than going to the shops and picking up the goods themselves. Hence the attraction of ‘click-and-collect’ over home delivery: except in the case of bulky goods, it is usually cheaper all round and much more convenient.
The problem with ‘click-and-collect’ when large numbers of items are purchased is the facilities/logistical investment required and the very substantial staff cost of fulfilling orders.
Why encourage shoppers not to visit stores? If customers pick out the items themselves, it costs the retailer nothing. After all, that is what supermarkets are designed for: the customer does the work and picks up the travel cost. Why use (and have to pay) staff to do the consumer’s job?
With both home delivery and click-and-collect services, there is the additional problem that – by deterring customers from visiting shop networks – revenue from impulse purchases are lost: ie, the only customers really worth attracting via the internet are those that would not otherwise visit a store (for example, in areas where the network penetration is weak).
This remains the challenge for multi-channel, using the new technologies to enhance the shopping experience – increase the convenience – and fill in market share holes without driving-up shopping costs overall and/or diluting profitability/sales. Somebody, shopper or shareholder has to pay for introducing both delivery and ’click-and-collect’ services.
Perhaps unsurprisingly, the big push in grocery currently remains strengthening store networks and store merchandising. Delivery services or click-and-collect are being pushed as well, but not with the same vigour.