SuperMarkets Changing Gears Due to Mounting Outside Pressures

Grocery stores gained notoriety for huge, big-box stores that opened during the 1990s and early 2000s. With the advent of online shopping and changing customer bases, huge supermarkets have started to downsize. Many larger, supercenter stores have less revenue, while smaller stores with less product on the shelves are becoming profitable.

Tesco, the United Kingdom's largest supermarket chain, had its largest loss in the 96-year history of the company when it had to write down more than $7 billion in property expenses. Smaller stores such as Aldi favor more compact stores with fewer products for convenience. Increasingly, shoppers have begun to frequent smaller stores throughout the week rather than shop in one store on the weekend. Customers would rather shop at grocery stores nearby to get a few things rather than head to large supermarkets to buy food in bulk and stock up for a week.

This convenience of smaller stores on the way home from work, coupled with online shopping and in-store pickup, have led grocery stores to rethink their retail strategy. In America, Wal-Mart allows customers to purchase toys, bicycles, sundries and housewares online to send to stores for pickup. Individuals pay for stuff online, pick up these items during their normal shopping routines and take them home without shipping fees. The success of Wal-Mart's Neighborhood Market stores bears this out.

In the United Kingdom, Tesco has 1,735 convenience grocery stores as of 2015 versus just 17 in 1999. That growth occurred even as Tesco's largest stores went from just five to 250 over that same span. The British supermarket giant shuttered 43 unprofitable superstores and stopped plans to build more in 2015.

Tesco rents space to other businesses such as car washes, cafes, yoga studios and exercise gyms in order to make use of the extra space it has in stores. Competitor Sainsbury's decided to rent extra space to concession stands from Argo, Virgin Holidays and other companies. Grocery stores may not have one-stop shopping, but they can offer different experiences based on what already exists the community. If one store sees a need for a gym, then that space can be filled with workout equipment used by customers instead of empty shelves with unsold products. Other large store chains rent apartments above their retail space to make ends meet.

Shoppers love convenience, such as avoiding lines at checkout counters. Tesco implemented a scan-as-you-shop feature that downloads your purchases to an electronic bin as you shop. On the way out, customers place their items on a scale to see if the weight matches what was scanned. Then customers pay and exit the store without waiting on a checkout clerk. Self-checkouts have been in Wal-Mart stores for years.

Goldman Sachs believes Britain's top three publicly traded supermarket chains must cut store space by 20 percent in order to be profitable. Tesco does not want to close any more grocery stores. The battle for supermarket customers continues to wage, and smaller stores coupled with Internet shopping seems to be the most viable model moving forward.

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