The Hypermarket: Evolving, Fifty Years On

  • June 2013 was the fiftieth anniversary of the opening of the first hypermarket.

  • In France hypermarket pioneer Carrefour has abandoned its ‘Planet’ revamps but it continues to invest in hypermarket overhauls.

  • In the UK Tesco, which has reported negative like-for-like growth, is slowing new hypermarket openings and is bringing in foodservice brands to help revive its larger stores.

  • But also in the UK J. Sainsbury continues to open larger stores – and is investing in its non-food offer.

The death of the hypermarket?

Carrefour in France and Tesco in the UK have experienced weak trading periods – albeit a much more extended period at Carrefour than at Tesco.

And both performances have been attributed in large part to their exposure to the hypermarket format. These retailers are perceived to have been hit by the migration of shopping for some non-food categories online together with some consumers opting for proximity shopping at convenience stores or smaller supermarkets.

So how are major operators evolving their offer and are there reasons for optimism for the hypermarket model?

Carrefour: continuing to overhaul stores

Carrefour opened its first hypermarket just outside Paris on 15 June 1963 and it has been seen as the ‘parent’ of the format ever since. In response to a sluggish performance in France, from August 2010 the retailer began to roll out its ‘Planet’ hypermarket model – featuring zoned areas and shops-in-shops to make these stores more of a destination.

However, heavy investment in the new format was not enough to drive a sustained uptick in performance. Under its new(-ish) CEO, Georges Plassat, appointed in February 2012, further conversions to the Planet model have been abandoned.

But Carrefour recently told us that it saw a lot of good things in the Planet model and that it worked particularly well in its merchandising of fresh food.

Carrefour France will continue to invest in overhauling its hypermarkets, with 150 scheduled to be remodelled, though these will be more modest overhauls than the Planet programme. Elements will, however, be retained: the market-style fresh food merchandising from Planet stores will be included in future revamps.

Carrefour advised us that one of Planet’s problems was that it had removed too much general merchandise (GM) from stores – and that store managers have since been given greater freedom to re-install non-food ranges in their stores.

This suggests that a strong general merchandise offer is still demanded by French hypermarket shoppers.

We also think that Carrefour’s difficulties in recent years are not principally due to its exposure to the hypermarket format. Inconsistent positioning and a perception of higher pricing lost it share, notably to value-positioned grocer Leclerc – another hypermarket operator, albeit one with slightly smaller stores than Carrefour.

Tesco: flexing the mix

In the UK, Tesco is experiencing weak trading and this is largely due to poor performance in its non-clothing general merchandise ranges.

In turn this is partly because purchasing of electricals and entertainment goods are moving online.

With less demand for GM in-store, Tesco is focusing more on opening Express convenience stores than Extra hypermarkets. In the 2012/13 year, Tesco made an £804 million write-down on its ‘land banks’ – property acquired for future hypermarket developments that will not now happen.

At the same time, Tesco is planning to devote less hypermarket space to general merchandise. With the liberated space, the retailer intends to install Giraffe restaurants (acquired in early 2013) and Harris+Hoole coffee shops (51% owned by Tesco since 2012).

Shifting some space from GM to foodservice is intended to make Tesco hypermarkets more of a destination store.

Meantime, the remaining GM offer will shift away from lower-margin, lower-growth categories (thought to include electricals) towards higher-margin, higher-growth categories such as health and beauty and homewares.

J. Sainsbury: investing in non-foods

Also in the UK market, Sainsbury’s is continuing to open large stores and is seeing strong growth in non-food sales.

New openings of large Sainsbury’s stores continue: the aim is to increase the proportion of the population within a 15-minute drive of a full-range Sainsbury’s store from the current 33% to 50% within around five years. Sainsbury’s biggest stores tend to be a little smaller than the very largest stores of Tesco.

New stores such as at Kings Lynn (72,000 sq ft in total of which one-third is GM) include department store-style merchandising of non-foods: small room sets showcasing furniture, wide aisles and more premium merchandising (such as wood fixtures) mark a step-up in the grocer’s homewares and clothing offer.

In June 2013, Sainsbury’s indicated this new non-food format will now be trialled in 12 existing stores.

In its recent Q1 trading update, J. Sainsbury noted that non-food sales growth is double that for food, with highlights including kitchen electricals sales up 34% and cookware sales up 23% year on year. Autumn 2013 will see the relaunch of its Tu clothing brand.

Crucially, Sainsbury is focusing on GM that it sees as complementary to its food offer, such as homewares; it is already less exposed than Tesco to big-ticket electricals.

Coupled with Sainsbury’s sales figures, these moves appear to confirm that hypermarkets giving over substantial space to GM are far from dead. It is a matter of offering products that sit well alongside grocery retailing.

What’s next?

For our report, Supermarkets: More Than Just Food Retailing – UK, November 2012, we asked British shoppers what services they had bought or would consider buying from supermarkets.

Among the most popular were mobile phone services: 15% of respondents opted for this. And June 2013 saw Sainsbury’s announce the roll-out of in-store mobile phone shops to 400 of its supermarkets following pilots in six stores.

In our Supermarkets survey, 4% of shoppers said they had bought or would consider buying beauty services from a supermarket. As we noted in Beauty Retailing – UK, January 2013, Tesco launched beauty hall-style zones and salon services in selected stores in late 2011, and it has recently been reviewing their progress as part of its GM overhaul.

And in our recent report, DIY Retailing – UK, May 2013, we flagged up the opportunities for growth in the gardening category, given the UK’s ageing society and the shift of wealth to older groups: affluent hobbyists should boost demand for gardening products in the longer term.

Waitrose has lately moved into gardening and we see opportunities for hypermarket operators to devote greater space to this category.

We think Tesco could leverage its ownership of the Dobbies garden centre chain to introduce an improved gardening offer in its larger stores. As with homewares, relatively small-ticket gardening products seem a more organic fit with grocery shopping than categories such as large electricals.

What we think

  • Sainsbury’s expansion indicates that the hypermarket is far from dead and that there remains substantial demand for general merchandise in grocery shops. Meantime, in France much of Carrefour’s lost share has been taken by Leclerc, also a hypermarket operator.

  • The current success of Sainsbury’s in the UK and Leclerc in France suggest moderate-sized hypermarkets are proving more popular than the very largest formats.

  • Activity from Carrefour and Sainsbury confirm that GM remains a pivotal part of the large-store offer.

  • But not all non-food ranges are the same: electrical goods are moving online much faster than clothing and homewares and they also tend to offer less of a complement to a grocery shop.

  • The GM mix in hypermarkets has to be complementary to a grocery shop: more homewares, beauty, gardening and small household electricals - and fewer widescreen televisions. And food stores need to merchandise non-foods in a way that imparts some authority: Sainsbury’s new department store-style merchandising leads the way here.

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