I think we all know that online shopping is increasing in prevalence, but despite some trending beliefs, I do not think we are seeing the “death of brick and mortar.” What I believe we will see is more consolidation, mergers, and acquisitions. The United States is way over-stored in terms of where consumers can buy food: Supermarkets used to dominate 90 percent of food stores, but now we have supercenters and club stores, niche operators such as the fresh-focused formats and the Aldis of the world. We even have 7-Elevens and Dollar Generals. Buying groceries has never been easier. So, where does brick and mortar fit in? Here is where my insights have led me...
SMALLER STORES
When you go to Europe, you’ll notice a change. This shift is in the number of companies in the market, how many stores they have, and, most significantly, their size. I think we will move more in that direction here in the U.S.
One way I see that is in consolidation. For example, if Company A buys Company B, both have 200 stores, but in five years instead of having 400 stores they’ll have 350. Underperforming locations will close and force that business to a nearby store of their own, something I think we will see more of as the market looks to thin out.
If you look at any marketplace and how many stores the top three or four retailers have today versus 10-12 years ago, it’s probably 20 percent less. Now, because of online shopping, I think you will start to see your Wegmanses of the world doing well. Wegmans is a very unique store that picks and chooses where its next location will be. It’s privately held, doesn’t have to make a profit in a new store if it chooses not to, and is very labor-intensive. You won’t see too many of those guys out there. It responds to a need in the marketplace and differentiates by creating an experience that validates their brick and mortar and their price points.
So, while I am certain this is not at all the death of brick and mortar, it is a time for change in how traditional supermarkets operate to stay ahead. - Dick Spezzano
For major supermarkets like Stop and Shop, Kroger, etc., they’ve been building stores at 65,000- to 75,000-square-feet where 20- to 25,000-square-feet specialty stores might do better. There are a couple companies already playing with the idea, but no one has really seriously rolled out the concept. Even the Neighborhood store by Walmart, which is a 40,000-square-foot store, only has somewhere around 750 locations despite being on the street now for 18 years. If it were really working out, there would be 1,500 to 2,000 by now. Because its strategy is based off the ease of getting those stores in locations versus a supercenter, that format will win.
We’re seeing the Sprouts and The Fresh Markets of the world at around 25,000-square-foot stores, and they are winning.
CHANGING SIZE WITHOUT LOSING SKUs
I think a retailer is going to look at their assortment and reevaluate how they can trim their square-footage. They clearly aren’t going to give anything up in perishables—that’s driving all of the sales.
Instead, you ask your perishable departments to work smarter. Instead of giving up SKUs, perhaps give up some space. Instead of cutting linear shelves, you might instead turn a 48-foot wet rack with two shelves into a 36-foot wet rack with five shelves. There’ve been some successful attempts at taking a look at how you use the space over and under the shelves to learn from.
Retailers might do the same for the rest of perishables as well, be that the meat and deli departments and so on, until we see some utilization of creating more linear space with less square-footage, and not giving up any SKUs.
In my opinion, center store is more where the assortment should be evaluated. You take a look and ask, “Okay, what business are we in? Do we really need auto supplies? Do we really need school supplies?” So, you have 150 SKUs in center store taking up 12 feet when you really only sell a handful of those items on an ongoing basis. Do you keep that handful or get out of it altogether?
I think the smartest strategy is to eliminate these items. No customer is going to say they don’t shop in that store because they can’t get school supplies and motor oil, because they don’t look for that when they go grocery shopping.
Beyond linear space and categories, a look at how many brands and sizes are necessary to operate a full-assortment supermarket. Every inch counts.
Continuous Investment
You have to invest in your stores all the time. I would say that every three or four years you should put a couple hundred thousand dollars into your stores. Are you supporting the right items at the right times? There’re so many things you have to take a look at, and many companies struggle when they’ve been around for 25 to 30 years—some stores used to make a ton of money, now not so much, and they might struggle with closing or relocating those failing stores. Some of the most prolific retailers have opened up a new store a mile or two up from an old store and shut that old store down because it is no longer in the right location. You are able to put your best thinking into that newest store, drill down into local demographics, and make smarter decisions.
For the Incoming Next Generation of Buyers
The retail landscape is changing, and so are consumers. It’s up to senior management to make sure that the team is keeping up. The key is always bringing in and training the right people on your staff, ensuring you are always developing them so they remain on the leading edge. A great place to start is with The Center for Growing Talent by PMA as they provide excellent programs for developing talent.
So, don’t get in the rut of “doing it that way because that’s what we’ve always done.” You are never going to change your results if you don’t change the way you do business, and I think that some of the regional guys have done a really good job at that.
Many are doing a really good job with stores and remodels, keeping everything leading-edge. They are utilizing space more efficiently, and they’re really big on perishables—they are an example of how you get out of that rut.
You’ve got to make sure your people are looking at trends and then getting out to “role model stores.” By that, I mean getting boots on the ground in those formats you consider to be the best in produce, floral, or deli operations—not the guys you might be competing with. This task may take you states away, or it might even be in Europe. Good consultants can tell you exactly where they are, and you have to go visit those stores and ask, “What is this grocer doing right, and how can I execute this in my store?” That’s how you refresh your store and stay ahead.
The Advantage of Brick & Mortar
Many customers will say something like, “I just like the produce better at my local market, rather than Amazon. And I like the person there who picks it out for me. I don’t know anything about melons!”
The people on the front lines are the ones who make the difference to the consumer. When you make sure they are knowledgeable and helpful, you can compete with anybody.
Take a look at Wegmans and H-E-B! That’s one of the things they do extremely well. Any time of day, you ask someone a question and they will know the answer, or they will drop everything to find out for you. That’s how brick and mortar will ultimately compete with online retail, having people on the front line and ensuring that they are knowledgable and friendly.
So, while I am certain this is not at all the death of brick and mortar, it is a time for change in how traditional supermarkets operate to stay ahead.
