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Published: June 19, 2007

 
 

Big Impact in a Small Format

Large retailers are beginning to see the beauty of a tinier world.

J.B. Beaumont, a convenience store operator in the U.K.’s East Midlands, saw less-than-stellar sales in its six stores — and recognized an opportunity. Changing demographics in the region, such as smaller families and more single-head households, were creating a valuable segment for a retailer that could provide a broad array of products in a format suited to these groups.

To cater to their needs, Beaumont began offering both takeout meals and meals that a family can prepare at home with minimum effort. It added cold beverages that can be consumed immediately; traditional grocery items, such as condiments, in smaller packages; and single-serving sundries such as aspirin. In short, it moved into the middle ground between, say, a fish-and-chips shop that can provide a meal but not much else and a grocery store that can meet all of a shopper’s needs but might also eat up an hour of her time. Beaumont’s new format did so well that it attracted the attention of giant J. Sainsbury PLC, which acquired the smaller retailer in November 2004.

The popularity of small format retail stores isn’t limited to Europe’s mature and affluent markets. The same trend is gaining traction in Latin America, where convenience store retailer Oxxo, for instance, has established around 4,000 stores in Mexico and is adding 300 to 400 stores there per year. The stores operate as franchises, usually owned by locals who are familiar with the micromarket in which the store is located and can customize service to the neighborhood’s needs. Stores in neighborhoods where residents return home late at night remain open 24 hours; other stores deliver to nearby areas with high numbers of elderly or affluent residents. Oxxo is building on the region’s traditional changarros, or mom-and-pop stores, by personalizing its service for its customers.

After years of hype about “big box” retailing, we see an increasing number of small format success stories, ranging from convenience stores, such as Beaumont in the U.K. and Oxxo in Mexico, to discounters, such as Germany’s Aldi and EKI Descuento in Argentina, which sell basic staples and key grocery items in a cost-effective neighborhood format. The interest in small formats may soon extend to the United States, as well, where big retailers including Wal-Mart and Publix already are experimenting with the idea.

However, the trend isn’t limited to purveyors of food items. Regardless of whether the smaller stores are selling groceries, electronics, clothing, or home goods, there are three major reasons that retailers should consider how small formats could work in their markets. One is that the consumer experience in massive retail establishments is becoming increasingly unattractive. The amount of time it takes to negotiate the seemingly endless aisles is a drawback to harried shoppers — and it's made worse when they hit the checkout and run into dozens of other people in a hurry. The size of the store also takes away from personalized service and doesn’t allow for a product assortment tailored to a particular demographic niche.

Lower-income shoppers, in particular, find that they are not comfortable in large stores because service is less personal and the broad assortment of products drives home how little they can afford. Furthermore, getting to large stores, which are often located far from city centers, is difficult for this group of shoppers, who have to spend money to get there and may even lose hourly wages if it’s truly out of the way. Going farther to a bigger store is only a good value, in terms of the total cost of purchase, if the big store offers substantially lower prices — and even then, the resulting savings are usually not enough to offset the cost of public transportation.

 
 
 
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Resources

  1. Guillermo D’Andrea, Leticia Costa, and Fernando Fernandes, “Successful Retail Innovation in Emerging Markets,” Booz Allen Hamilton white paper, January 2007: A joint study between Booz Allen and the Coca-Cola Retailing Research Council shows that small format stores are a strong fit for Latin American markets. PDF download.
  2. Guillermo D’Andrea, E. Alejandro Stengel, and Anne Goebel-Krstelj, “6 Truths about Emerging-Market Consumers,” s+b, Spring 2004: This article focuses on the results of a Latin American study of emerging consumers and their shopping preferences, including their affinity for small format stores. Click here.
  3. Alonso Martinez and Ronald Haddock, “The Flatbread Factor,” s+b, Spring 2007: An in-depth look at how consumer products evolve in emerging markets. Click here.
  4. “Wal-Mart May Be Mulling Small-Store Strategy,” Dow Jones MarketWatch, April 30, 2007: A brief overview of Wal-Mart’s potential response to European competitors like Tesco that are adept at small format retailing. Click here.
 
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