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Does the Supermarket Format Need Size Overhaul?

Does the Supermarket Format Need Size Overhaul?

What keeps supermarket executives up at night? It's topics such as the downturn, unemployment, consumer confidence, inflation, deflation, prices and the big “W,” Wal-Mart.

Those issues are so urgent that more fundamental ones often fall under the radar, including questions about the supermarket model itself. That topic was raised in the most recent Supermarket News Financial Analysts Roundtable, when one analyst asserted that stores need to overhaul size.

“If you had to invent a supermarket today, you would not build a 50,000- or 60,000-square-foot store,” contended Neil Currie, executive director, UBS Securities. “The edge of the store is shopped very well, and that's why visits remain very high. But the whole store is under-shopped, and you just don't need that size anymore.”

Years ago supermarkets were without meaningful competition from other formats, he continued, so they captured all the shopping occasions, whereas today other retail channels siphon off business. As a result, today “a lot of people use supermarkets for largely perishable needs and some in-fill pantry items.”

Currie's point is more about square footage than template. “The format of the store is relevant, but the size is less relevant,” he said.

Currie isn't the first observer to call for a space downsizing, but he makes the point more forcefully than most. He says there's room for one category-killing supermarket in each market, and that Kroger has battled to fill that role.

So is it time for the secondary conventional players in each market to start planning their exit strategies? Not so fast. Another roundtable panelist, Andrew Wolf, managing director, BB&T Capital, argued that the 55,000-square-foot format is still alive and well for numerous private chains.

Not only that. The notion that smaller is better has led operators to experiment with small-store boxes in recent years, and those initiatives have had only mixed results so far.

While Currie makes some good observations, I would argue that size is only one part of this calculation. Operators need to continually rethink store layouts for optimal performance in each department. That analysis might lead to a reduction in overall store size, but it might not.

A retailer may decide to reduce space devoted to one grocery category but to redirect that square footage to creating a world-class baby or pet department, or whatever most resonates with the local market. So in this case the total store size doesn't change, but space allocation is reworked to create a more compelling draw.

The point is, the best concept should determine the appropriate size, not the other way around. The industry needs to take some risks and mount locally relevant assortments that stand out from the pack. Size actually becomes a secondary consideration in that exercise.

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