Hypermarkets under pressure

A new report* by the independent retail analyst has revealed that although the hypermarket format quickly grew to dominate grocery retailing, emerging consumer trends, along with stricter legislation on hypermarket expansion and heightened competition, are prompting hypermarket retailers to rethink their operations.

This is taking the form of increasingly innovative in-store services, further development of complementary online services, and downsized stores, resulting in an entirely new large format grocery store concept.

Natalia Grabov, analyst at Datamonitor Retail, said: "One of the reasons for the popularity of hypermarkets in the past has been the ability to offer almost everything under one roof at competitive prices. Consumers' search for value during the recession has resulted in discounters gaining a high level of loyalty, particularly in the markets most affected by the downturn. For example in the US, Wal-Mart's Sam's Club has outperformed Wal-Mart itself in terms of comparable store sales. However, online retailers pose one of the biggest threats in the long term as they're able to undercut hypermarket store prices."

Facing pressure from online

Hypermarkets are facing pressure from the online channel across all product lines. However, non-food is the area of greatest concern, with the Internet becoming the most convenient way of buying bulky items such as furniture and electricals. Online stores such as Amazon are also increasingly able to undercut hypermarkets on price, product range, and convenience, making the growth of the online channel a formidable threat to the hypermarket.

Grabov continued: "In the past hypermarkets have been able to rely on loyal customers, but now they will need to innovate in order to protect margins and ensure they can continue to expand. Online will become increasingly important, and hypermarkets should look to align it more closely with store operations. For example shoppers are increasingly able to order online, have their order hand-picked in a nearby store, and then delivered to their address, and in some regions they can also pick up their orders from the hypermarket itself or a specialised warehouse. Auchan's Chronodrive warehouse model is a prime example, operating outside of normal store opening hours and offering customers a cost and time effective route to collect their shopping. Offering additional services in-store will also encourage footfall."

*Global Hypermarket Revitalisation Strategies

© Datamonitor 2011-04-19