In the second Retail Times and Euromonitor International Retail Spotlight feature, Jon Wright, head of retailing research at Euromonitor International, explores the future opportunity for hypermarkets
At a global level, hypermarkets have been a growth engine of grocery retailing, accounting for nearly a quarter of all additional sales generated between 2006 and 2011.
However, as time has gone on, the store format has come under increasing pressure in developed markets, with its underwhelming performance in France being replicated in the US, the UK and elsewhere.
This has meant, while the channel’s sales continue to rise as new stores are built or supermarkets are converted into hypermarkets, sales per store and per sq m are falling.
Hypermarkets’ rivals grow in number
Hypermarkets were seen as the best way for a retailer to meet the consumer desire to purchase everything – grocery and non-grocery products – under one roof for as low a price as possible. Although times and consumers have changed, the hypermarket has steadfastly stayed the same.
Now consumers want to shop on their way home and quickly for a small number of items they need now.
Hypermarkets, however, are located on the edge of towns and cities and are huge in size. They are also increasingly uncompetitive on pricing due to the twin pressures of hard discounters and the rise of the internet.
As a result, other channels have become the consumer’s first choice when they look to shop.
While the sales performances of hypermarkets in 2012 differ between developed and emerging markets, the long-term outlook for the channel appears to be negative as retailers in Brazil and China begin to mirror the strategies being adopted in Western Europe and the US.
These changes are encouraging hypermarket operators in developed countries to review their legacy store base; while in developing markets they are likely to make operators question whether the existing format should continue to be the one they use.
The knock-on effect for manufacturers
As the popularity of hypermarkets wanes, the effect will be felt along the supply chain and in the distribution of products, grocery and particularly non-food ranges.
In beverages, large pack sizes have been among the fastest growing segment, with manufacturers riding the wave created by ever bigger stores.
But as consumers switch buying patterns to smaller stores, it will impact their product development.
In the non-food appliance market, hypermarkets accounted for nearly a third of all units sold globally between 2006 and 2011 and were the second most important channel for the category.
However, with fewer consumers visiting hypermarkets, manufacturers will need to seek out new customers in order to grow sales in future. Many of these are likely to be online.
And, if this is the case, it will force manufacturers to think about how consumers will discover how appliance doors open, for example, and whether an item would fit with their home décor before buying it.
Consumer appliances won’t be the only category affected either.
Clothing, consumer electronics and home and garden items, among others, are also likely to be hit.
So, what is the future for hypermarkets?
Euromonitor International is forecasting over 6,000 new hypermarkets will open between 2011 and 2016, underlining how the format is not going to disappear, despite the setbacks it has faced.
As such, operators in all regions will have to think about how to evolve their hypermarkets to make them relevant to consumers in the future.
In developing markets, Wal-Mart’s introduction of a stripped down, mini-hypermarket in China that is cheaper to build and focuses on lower-priced goods, may point to how the format could evolve there.
However, for retailers in developed markets, they will have to quickly work out what to do with their legacy outlets.
The first step will be to adapt the format to a multi-channel world by boosting online ordering and pick-up-at store options.
At the same time, they will have to concentrate on products, improving the quality and breadth of ranges, especially in relation to apparel and homewares; while cutting back on the space given over to consumer electronics and media products, which have become commoditised and are easily sold over the internet.
However, making the stores destinations for consumers will be the most important factor in extending the shelf life of hypermarkets.
Changes to product ranges will help make them easier to shop but adding exclusive products, which mean they are not showrooms for online retailers will become vital.
That will encourage retailers to concentrate more on product development and the quality of their private label ranges and enable them to better compete with their rivals.
In 2012 the outlook for the hypermarket is overshadowed by the evolution of other channels and consumers’ changing shopping patterns.
However, all is not lost for retailers operating these stores, but they are going to have to be far more fleet-footed about how they adapt their store formats moving forward than they have been to date.
Source: Euromonitor International, Retailing Industry