Changes in grocery retailing

The previous post on walking to the grocery store got me started thinking about grocery retailing and the changes that might affect urban areas and how we can get to the store.

First, the standard supermarket has been getting ever-larger. According to the Food Marketing Institute, the median store size has increased from 35,000 square feet in 1994 to 46,000 square feet in 2014. The types of offerings have expanded, including things ranging from flowers to pharmacies to prepared foods, and the variety of items in departments has expanded, with produce being a notable example. This offers more options and convenience for the consumer, but with the downside that the larger stores are less convenient when you want to run in to quickly purchase a few items. The larger size and inventory probably mean that these supermarkets require at least a somewhat larger market area, resulting in their being at least a bit more widely spaced.

The next big change has been the rise of Walmart to become by far the largest grocery retailer in the U.S. Most of those sales come from their Supercenters combining groceries with the discount stores selling everything else. These are of course huge stores, with large market areas and are necessarily widely spaced. The wholesale membership stores such as Costco are somewhat similar.

The large size of traditional supermarkets and the even larger size of the Walmart Supercenters have led some to see an opening for somewhat smaller markets that are more convient for picking up a few items. Such markets might require smaller market areas and could be located closer to consumers. Walmart developed their Neighborhood Markets but has had to close a significant number. British supermarket giant Tesco started a chain called Fresh and Easy and opened smaller stores across Southern California. The venture was not a success, and they were forced to completely pull out of the market. So I think the general viability of these smaller stores is still an open question.

Recent decades have seen the growth of grocery stores serving narrower, more specialized markets. Whole Foods caters to those interested in organic foods (and who are quite affluent, given their prices). The stores are large, though they are now opening versions that are somewhat smaller and supposedly will have more reasonable prices. Trader Joe’s is another example of a specialized grocery retailer. Their stores are smaller and carry a limited selection, emphasizing organic foods (though not to the same extent as Whole Foods), house brands, and unusual, sometimes even quirky products. But despite the difference in store size, both chains are serving smaller segments of the market and must draw customers from much larger catchment areas. For example, Whole Foods has only 31 stores (if I counted correctly) in the entire Los Angeles metropolitan area to serve a population of around 13 million people.

So numbers of significant trends in grocery retailing suggest that more stores have been requiring larger market areas and will necessarily be more widely spaced. It is certainly possible that someone can develop the formula to make the smaller neighborhood market concept work. Other changes ranging from new forms of urban development to changing lifestyle preferences can affect the demand side.

But perhaps the biggest wildcard in this, as I mentioned at the end of the last blog post, is the possible growth of online ordering and grocery delivery. If this takes off, it will necessarily reduce the size of the market for the brick-and-mortar grocery stores of all kinds. This will increase the market areas required for those stores, resulting in fewer stores of all types that will then be more widely spaced. Think bookstores.

 

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