Is convenience the new battleground for supermarkets?

Toy soldiers prepare for battle

This article appeared first on Inside Retail Australia.
Read the original article here: Is convenience the new battleground for supermarkets?

Opening its first Corner Store concept store earlier this year, ALDI followed the trend of Coles and Woolworth’s inner-urban small-scale stores. Is convenience the less recognised but fundamental battleground for supermarket brands? Craig Flanders asks the question.

In July, German supermarket brand ALDI opened its first Corner Store concept store in North Sydney to little fanfare. Given Sydney was in the midst of a Covid lockdown at the time, there wasn’t much of a song and dance, but it shows we should never forget convenience for customers will always be fundamental battle ground of retail.

On its website, ALDI describes the store as being, “like a regular ALDI, only it a bit smaller.” And like the Coles and Woolies smaller format approach, the offer is modified from its standard store with “fancy bread”, meals to go, sushi and barista coffee but is “still different” with the prices “still low”.

It’s the first of its kind in Australia and a first for the brand which is known for taking an innovative approach to store formats that cater specifically to market demands. In Italy, ALDI stores have an Italian wine cellar; in China, ALDI is an online-first business and in Germany, the brand is taking on petrol stations.

The Corner Store concept rollout is reportedly part of a bid by ALDI to grow its 12% market share, with the help of a $1.3 billion war chest putting existing stores under the microscope. The North Sydney Corner Store previously adopted the standard Australian ALDI format.

But the opening comes at an interesting time for the convenience supermarket space with Covid taking a bite out of sales for Woolworths and Coles smaller format stores. In June, it was reported that 80 Woolworths Metro stores are under review in CBD locations and transit hubs. Likewise, a new Woolies concept, MetroGo in Sydney’s Surry Hills, shut its doors when the pandemic began.

Given the huge plummet in CBD footfall brought on by pandemic lockdowns – Google mobility data shows Sydney experienced its first double-digit decline (19 per cent) in 2020 with Melbourne also experiencing a 19 per cent drop and Brisbane down 10 per cent – inner-city convenience stores that once catered to throngs of office workers were destined to feel the pinch.

With large parts of the country once again in lockdown, or with significant restrictions affecting movement and office attendance, the pain isn’t over yet. And with many businesses and employees opting to work from home for some or all of the time post-Covid, the viability of CBD convenience stores will remain problematic.

Smaller format supermarkets in urban residential areas are likely to be a better bet for Coles, Woolies and ALDI as consumers continue to embrace localism. Research conducted by Spinach over the past 12 months shows that following disruptions to supply chains during the pandemic, consumers are much more interested in shopping local, be that purchasing Australian brands and produce or simply shopping at stores closer to home. You kind of have to when you’re unable to travel more than 10 kilometres from your home.

For Coles, the Coles Local format embraces this approach with the first of its new-look local stores opening in Sydney’s Rose Bay in 2020. Coles describes the format as, “a tailored in-store experience, partnering with local butchers, bakers and cafes to offer a bespoke range of high-quality foods designed to meet the needs of local residents.” In the case of Rose Bay, that means affluent, time-poor consumers aged 25 to 44.

Besides localising the offer for a more discerning, inner-city audience, another driving factor in all of this is the hefty cost of Australian real estate. Reportedly, Coles and Woolies started exploring smaller format size stores when they found it cost-prohibitive to secure enough space in urban areas for regular-sized supermarkets. It’s the same challenge faced by retailers in the big-box space which sees them relegated to outer-urban homemaker centres. It’s why you don’t see Bunnings stores in CBD locations.

Given all of this, is ALDI likely to grow its market share by adopting a convenience-led strategy? My view is that this is the perfect time to start and refine this approach. With the uncertainty of Covid still looming large, the brand can take the time to do its homework on potential locations for these new concept stores and refine the product mix. The big guys should be watching carefully.

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Craig Flanders

A passionate advocate for the strength of full integration shaped by 25 years in advertising where he’s held a number of senior management roles, Craig oversees all aspects of our integrated offer.