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The end of hypermarkets

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.

Expert panel
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.”

The future
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.


Why Marmite Matters

i-love-you-marmiteUnless you grew up in the UK, a news story claiming that Denmark had banned a British product called Marmite from sale, because its fortification with vitamin B fell foul of Denmark’s regulations, will probably leave you cold. But for Unilever, the company that now owns the brand and markets the product, the story represents the kind of marketing that money can no longer buy. At least, not directly.

As it turned out, Denmark had not technically banned Marmite or any product like it. But that hardly matters. By the time the facts were set straight by the Danish embassy, the whole of the UK was talking about the brand and, by happy chance, everyone now knew that it was a source of vitamin B. For the uninitiated, Marmite is a dark brown savoury spread made from yeast extract, a brewery by-product. Dating from 1902, it has a very strong and distinctive flavour that tends to polarise opinion. If you grew up liking it, you’re probably still attached to it. If you grew up really not liking it, then you are probably appalled by it and unlikely to change your mind.

Unilever, since it acquired Marmite in 2000, has been highly adept at exploiting the extreme feelings towards its brand and has long run humorously self-mocking ad campaigns around the tagline “love it or hate it”. Today, the company goes as far as to run opposing brand websites and Facebook pages, one set dedicated to lovers of the product (650,000 fans), the other reserved strictly for its haters (180,000 detractors). There is passion in both camps. The result of this decade of studied foment, along with some clever merchandising, has been to elevate the status of the brand from quirky choice that isn’t for everyone to that of National Icon. There was jingoistic booing on the lovers’ Facebook page when the Denmark story broke. There was rejoicing on the haters’ page. Some of the comments there went far beyond criticism.


The more the “haters” hate, the more they reinforce the identity of the superfans, or the Marmarati, as they were dubbed by We Are Social, the agency that launched premium variant Marmite XO via social media last year. Marketing has entered a new universe. That old megaphone system – where capital bought us a mass media platform to interrupt a mass of people with a message about our product, repeatedly until masses of them bought it – that system is over. We know why; we all got the memo about the fragmentation of media channels, the rise of internet use, the disruption of business models and the need to find new channels. In this world, the concept of the mass market is as outdated as its media channels.

In 2010, Facebook finally overtook Google in the US as the most visited site on the internet. One of the reasons for the shift was that, increasingly, people were bypassing search as a way to get information and instead reaching out to their networks, their social groups, for answers that were more meaningful and relevant to them than the hierarchy of results proposed by Google. In a world of social media, what is of value is no longer what pops up first in search; we know that is the result of either paid sponsorship or canny search engine optimisation. What is valued is that which is most shared from peer to peer. One of the chief challenges of marketing on social media, therefore, is getting people to share messages about our brands. Why would they?


They will if the content is worth sharing. You cannot create artificial communities. Communities are organic and these “tribes” coalesce by themselves around a shared passion. As marketers, if we try to manufacture communities for products and services that have no tribe, we will have a long and difficult time ahead. The trick is to find the tribe and give it something worth sharing. Unilever understood about tribes a decade ago when it began marketing around Marmite’s power to divide. The result, today, is two tribes of passionate consumers fervently talking about Marmite online, sharing stories about Marmite and images of Marmite. Yes, even those who had no intention of buying the product were engaging with and building the brand, effectively spreading the word. The traditional media all joined in, with right-leaning and left-leaning news sources alike running stories about Denmark’s alleged ban on Marmite.

You literally cannot buy this kind of coverage. Well – a brand could pay an agency to mastermind such a campaign and seed the story, but after that, it runs itself. The first wave spreads the initial story. A second wave retracts it (score two for brand recognition). A third wave picks apart the phenomenon. Score three. That’s a lot of mentions, a lot of value and all of it done on behalf of your brand by people who freely opted into the process of sharing. There is nothing to suggest this particular story was a covert advertising campaign, but it does provide a very good future model.

This space for free

The key lesson here for brand owners is that, in a world where ideas that spread organically win the game, interruption marketing – the kind for which we used to pay out millions – doesn’t really work. Not the way it once did. People have too much choice and too little time; they will filter out, ignore or otherwise redact these intrusive messages from their lives. What work are messages spread by people who opt in, who care enough to share. The challenge is not creating a product that is the best, but creating a story, some content around your brand that is remarkable enough to be worth sharing. Get that right and advertising is now free.


Insolvent retailers

More retailers are becoming insolvent

Are we paying attention to the warning signs?

The decline of the CD has been a long train coming. The first publicly-available MP3 converter appeared in 1994. MP3 music files immediately began to circulate across the internet. The media was writing about MP3 long before Napster launched in 1999. Apple launched the iPod in 2001. The signs were crystal clear. As has been exhaustively documented elsewhere, both the record industry and the CD retail industry did precisely nothing.

Well, they pursued a few illegal file-sharers. How effective these high-profile examples were in changing behaviour is hard to determine. Some commentators maintain that the present drift away from illegal file-sharing to legal download sites or legal streaming sites is down to the fact that the record industry finally accepted that MP3 had arrived and began to licence pay sites instead of trying to shut them down. The record industry’s initial stubbornness, however, cost it dearly. Not only did its resistance effectively grant a temporary monopoly to piracy, enabling the delusion for a generation of music lovers that music is and should be free, but it gave a false hope to retailers of CDs that the format was sustainable as a business idea.

In October this year, online retailer Amazon launched the first international version of its electronic e-book reader, Kindle. The inescapable reality that creative media content, whether it is text, music or video, can now be downloaded via the internet and played or read on a range portable electronic devices is not a trivial detail in the recent news that Borders and cdiscount in the UK have failed. Unable to find a buyer, Borders placed itself in administration. Cdiscount , in which French supermarket giant Casino has a stake, has gone into provisional liquidation.

In France, luxury group PPR is hurriedly offering its own media retailer, Fnac, for sale. (While Fnac is not insolvent and is being disposed along with Conforama, PPR clearly sees the advantage in a swift exit from the mass entertainment media business.) Like Borders, Fnac mainly sells music, books and DVDs and is based around a significant rangeholding in each store. The company has already closed one CD-only store in Paris. Should a company be brave enough to buy Fnac, their first order of business, one would think, would be to scale back drastically its dependence on sales of physical entertainment media and focus on consumer electronics.

Facing up to consumer change

The Borders UK story is instructive. Its owners and management ignored the realities of changing consumer demand and denied the need to adapt the US business model for the UK. Borders stores have a lot of cash tied up in low-margin inventory and need scale to achieve profitability. The company was unable to achieve this in the UK, due to rent costs, planning restrictions and competition for sites. CEO Philip Downer did acknowledge digital disintermediation as a factor in the market. But he appeared to downplay its significance and plugged on, convinced that consumers really did want to buy books and CDs and that the business could trade itself well again by tinkering with category management and discounting bestsellers.


Philip Downer: “I can guarantee that a significant portion of our income will come from something we haven’t yet identified.”

But with the gradual migration of book, CD and DVD sales to online retailers such as Amazon and latterly to downloading sites (Amazon offers this as well) the business was left with fixed costs that could only go up, pitted against demand that could only go down. Borders Group, the US parent company, realised this and sold off the UK arm to Luke Johnson’s Risk Capital, back in 2007. It turned out to be too heavy a risk for Johnson, who admitted defeat and sold it on in June this year to Valco, a specialist in troubled retail. As recently as October, in a poignant expression of misplaced optimism, Downer announced his vision for future success: “I can guarantee that a significant portion of our income will come from something we haven’t yet identified.”

The company’s descent into insolvency in the UK was slow and painful for the business, painful for the industry for which it was an outlet and is about to become painful for its 1,500 employees.

This story first appeared in Consumer Business News, 2009