I had a call last week from a member of the media asking me for comment on the future of big box retailing. In the face of closure of a number of the stores across the USA, it seems that there is a focus currently worldwide on the future of department stores and larger retailers. My opinion is that there is no current need to worry. In New Zealand there has been a focus on The Warehouse Group, and some people suggested that Kmart were eating into The Warehouse’s market share. This is an exaggeration of the issue: Kmart have been in New Zealand since the early 1980s, and although they are currently flexing their muscles, they have limited store numbers and therefore a major threat to The Warehouse is unlikely. However, they may impact in locations where they directly compete, as Kmart’s image is sharper than the Warehouse.
From this discussion however, I was drawn back to the impact of the players in the supermarket business
In the early 1970s a common sized supermarket was in the order of 1,100 square feet (not square metres, but feet). Supermarket sizes have since gained momentum and the average would now be in the order of 3,000 to 4,000 square metres (sqm) with larger versions also being common such as Pak N Save. Over time we have seen the disappearance of brands like Self Help, which was a traditional Foodstuffs brand, and also Foodtown, which had been a popular banner in the Progressive stable. We now have Countdown, out of Progressive and New World or Pak ‘N Save out of Foodstuffs.
However, the recent rebranding of Nosh Constellation Drive as New World suggests that Foodstuffs are looking harder at the premium brand outlets, in space of 500 sqm upwards. This is indicative of the movement in consumer spend which is focused on a quality food experience, akin to the fact that consumers have more money to spend and enjoy a quality experience.
So are we likely to see more specialty supermarket activity from Foodstuffs and Countdown?
Being they are the major players in the supermarket industry I expect so. The opportunity for full service supermarkets of 3,000+ sqm is significantly less than a decade ago and smaller facilities in the range of 500 -1,500 sqm seems to be an ideal fit for smart specialist food outlets, almost like a large delicatessen. The opportunity to locate these in bustling suburban locations is a prime opportunity for future growth, as well as metro stores in downtown city locations that have high foot traffic.
The supermarket industry continues to evolve and change as demand dictates for a different or smarter offering. Whilst Farro have really made their mark in Auckland, and is a close client of RCG, it is apparent that some competition is likely to emerge from the bigger players. Ironic isn't it, that back in the 70s, the major players operated out of store sizes - like Self Help which were abandoned. But these now seem to be the new footprint for the specialty food offering, that is emerging.
Paul Keane is a registered property professional and has vast experience in New Zealand’s commercial property industries. He provides retail and property consultancy including development management to many New Zealand property owners, developers and city councils. This post originally appeared on RCG's blog.