Is it over for hypermarkets?
Increasingly urban, time-pressed and tech-savvy, consumers are shopping ever smarter and closer to home. In this context, has the hypermarket become irrelevant? We ask three senior retail analysts.
Spend enough time poring over company reports and financial statements and patterns will begin to emerge. Or, at least, it can seem that way.
About a year ago we began to suspect all was not wholly well with the hypermarket channel in Western Europe. The source of the hunch was negative sales growth or softness revealed in company financial reports or market data, but a trend was far from proven. Our feeling, given other trends impacting the market, was that the channel was probably losing traffic to proximity formats, which have been improving their penetration, their sophistication and their value proposition, or to convenient models such as click and collect. It stood to reason, but proof was elusive. The hypermarket remains the single most important volume channel for consumer packaged goods, so clarity on the health and future of the format is needed. We decided to dig for data.
It took a while, but some finally came in October 2010. Nielsen revealed some numbers at a trade event in Berlin, showing that hypermarket turnover per store in Europe had fallen by 7% on average over the last few years, across a sample of 20 countries. This was the first time we had seen any quantitative data on the subject. Presenting the figures, Jean-Jacques Vandenheede, Nielsen Director of Retailer Insights, Europe, said hypermarkets had suffered in recent times. “There is a need to reinvigorate the hypermarket,” he told delegates.
In discussion now with Delevine Media, Vandenheede offers some theory on what might be causing the decline: “I think that the first issue is shopper missions. At different times shoppers have different shopping intentions: do I need a lot? Do I need something quickly? How much time do I have? Shoppers will reconcile shopping missions with the most appropriate store. A big tendency is that urgent, immediate needs have gained over time.”
Joining the conversation is Natalie Berg, global research director at Planet Retail. Could recent price deflation account for some of the turnover decline? “Hypermarkets used to win on price and assortment,” Berg says. “Today we have discounters and the internet. So, yes partly price deflation in certain categories like electronics. However, it’s more a case of shoppers defecting to other more relevant channels such as discounters and c-stores, as well as online. The concept is dated.”
In what way, we wonder. “Consumers used to venture out of town to hypermarkets for low prices,” Berg explains. “However, today the blurring of discount and convenience means that low prices are readily available on the high street, leaving little incentive to travel to hypermarkets. Similarly, online continues to gain momentum throughout Europe, bringing all of the products (and more) and prices typically available in a hypermarket right to the consumer’s home.”
Vincent Verdier, director of insight consultancy at Kantar Retail, concurs with Berg and Vandenheede, but adds a proviso: “If you look at the blunt data over, let’s say, five to ten years, then yes the channel is losing share. That’s a fact. So, on that basis I would agree 100% with Jean-Jacques and Natalie. But are all hypermarket retailers doomed? No, I don’t think that’s the case.” Citing market share figures from Kantar Worldpanel, Verdier says that the downward trend is not evenly spread across the channel, even in Western Europe, where the format originated. “Some hypermarket operators are having trouble, while there is some growth being witnessed for others: Leclerc, Tesco Extra, Kaufland for example. Hypermarket is the fastest-growing channel in Russia and as far south as Turkey it’s not declining.”
“Western Europe is the problem child,” Natalie Berg says, adding weight to this argument. “The market is saturated and legislative restraints make it virtually impossible to open new stores. There is still plenty of growth for hypermarkets in emerging markets, but we are likely to see a new wave of expansion through the compact hypermarket format. Despite trading from a smaller footprint, compact hypers tend to be just as profitable as a traditional hypermarket. The advantages? Lower operating costs means lower prices, which enables retailers to reach out new consumers in areas that may not otherwise support a full hypermarket. Walmart has had tons of success with this in Latin America and they just opened their first one in China.”
Vandenheede also downplays the idea of a universal downward trend: “This chart is made up from trends in 20 countries: in each of these countries there are specific situations every year.”
So what conclusions and strategies can we draw from this? Should retailers continue to invest in the channel in the face of traffic decline, and should brand manufacturers be worried? Vincent Verdier says the future of the hypermarket channel is a key topic for the majority of his clients. “Competition has heated up, but while the format is being challenged by more convenient, simpler and faster shopping trips and concepts, it is important to remember that hypers continue to deliver some sort of growth nevertheless.”
He points to recent examples of hypermarket operators innovating: “Casino is trying by improving its Géant layout and assortment, and obviously Carrefour is rolling out Planet,” a concept that attempts to boldly re-imagine the hypermarket shopping experience. Verdier adds: “The point is that hyper continues to deliver huge majority of sales for branded manufacturers; hence it is impossible to simply walk away from it.”
Natalie Berg develops this argument by saying successful retailers must adopt a multichannel strategy. “There is no such thing as a hypermarket shopper or a convenience store shopper. Retailers must be able to reach their customers on different shopping occasions, whether that is in a big-box out of town or while shopping on their mobile phones … Hypermarkets must create a more compelling reason to shop. The most basic rule in retailing is staying relevant to your customers.”
Jean-Jacques Vandenheede underlines the axiom that consumers don’t shop by channel: “Shopping missions are the key. Shoppers will not put in balance a trip to a hypermarket with a trip to convenience. The mission will define where to shop. Hypermarkets need to give shoppers the arguments and incentives they can’t refuse.”
That sounds like consensus. But with ongoing socio-economic trends pointing to more single households and more urban living, those incentives had better be compelling.