Extract as much value as possible out of grocery store square footage

by | Dec 7, 2017

Many department stores and mall-based retailers are closing thousands of locations after years of over-expansion. At the same time, traditional retailers are facing stiff competition from more modern, omnichannel retailers, many that started as e-commerce sites.

Grocers could be heading towards a similar fate. The United States has 4.15 square feet of retail food space per person, which is nearly 30 times higher than in 1950, according to CoStar Group data cited by the Wall Street Journal. It’s not just traditional grocery stores, either as wholesalers like Sam’s Club and Costco have grown in popularity, while, retailers like Target and Walmart have spent years expanding their retail food categories. Walmart has even begun opening grocery-only stores of around 20,000 square feet.

New players are entering the field in the grocery store market landscape, too. German grocery brands Aldi and Lidl have popped up in the market, and they, combined with Dollar General, are collectively planning to open thousands of new stores over the next couple of years.

Amazon has waded into the food wars following its recent acquisition of Whole Foods, opening up a whole new world of possibilities on the home delivery front.

We have reached a point in this country where the amount of retail space devoted to food sales has hit a record high, and it’s only going to go higher. Add in the fact that grocery is now facing more e-commerce pressure, and it becomes evident grocery brands are facing the same problems as today’s traditional retailers. Grocers and grocery chains should look to retail’s omnichannel strategy to extract as much value as possible out of their existing grocery store square footage before building new locations.

Create more value in your grocery store

The time-tested approach for many grocers to compete is to drop prices, but there comes to be a point where prices simply can’t go any lower. If price is the great equalizer, additional services and a great customer experience will be the differentiators in food retail.

For example, you could offer meal subscriptions. There are already boxed meal subscription services like Blue Apron that will ship the ingredients needed for a single meal, but those are rather costly when compared to buying the same ingredients at the grocery store. So what if you could pre-package similar meals — stir fry, spaghetti and salad, chicken Kiev — and make them available, complete with recipes and even instructional videos online?

You could also offer prepared meals. The grocery chain Publix, which is big in the Southeast, is known for both their rotisserie chicken and their deli sandwiches. Other grocers are following suit, and offering hot and cold prepared meals to their customers who don’t have time to cook.

We’ve been learning over the years that the “outer ring” of the store is also growing. Shoppers are becoming more interested in fresh produce, the deli, and the bakery, which is shrinking the center of the store and all the canned and packaged goods. So expand your bakery and deli offerings, as well as adding more exotic and organic produce. You can even use those additional products in your meal subscriptions and prepared meals.

We’re also seeing more “groceraunts,” which are a combination grocery store + restaurant. An NPR story recently focused on the stores that serve food in their own restaurants. They sell beer and wine, as well as meals prepared in the store’s kitchen using store ingredients. The costs are lower, and it’s still a place for people to eat rather inexpensively. (And then maybe pick up some wine or even the ingredients for another meal, before they leave.)

Finally, streamline the supply chain and actual grocery shopping experience by putting everything online, and offer “buy online pickup in store” (BOPIS), curbside delivery, or even home delivery. There are always going to be people who insist on coming inside and doing their own shopping – they’re coming to the store anyway. There are other consumers, though, who are very busy and are always looking for fast, convenient grocery buying and delivery options. The grocers that make it easy for them to buy and receive what they need are going to win their business.

Just like retail, the grocery business had basically the same model for decades. Now, technology advancements, shifts in consumer behavior and increasing competition are pushing the grocery industry to make adjustments. Just having the stores isn’t enough anymore – with so much grocery square footage, more differentiation is needed to survive and thrive in food retail. Taking cues from the lessons retail has already been learning can help grocery catch up to consumer expectations.

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Peter Zaballos

Senior Vice President & CMO at SPS Commerce
Peter brings more than 15 years of experience in product development, marketing and business development in enterprise, mobile computing and consumer internet businesses. At SPS Commerce, Peter leads the product strategy and marketing programs to support the company’s growth and presence in the retail supply chain market. Additionally, he serves as an advisory board member for two consumer web service firms, Glad2.com and SquareHub.com, where he focuses on branding, positioning and message development.
Peter Zaballos

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