The rush to roll out new grocery formats
By Neil Andrews, Associate, Red Tiger Consulting
There has been phenomenal media coverage in the past couple of weeks, as Tesco launch their new Jacks discount grocery format. The new look value stores are aimed at competing head to head with Aldi and Lidl. Much was the case in the United States in early 2016 when Whole Foods Market launched its 365 concept aimed at broadening customer appeal, breaking down value perceptions and competing more aggressively with the likes of retailers such as Trader Joes (Part of Aldi Nord). This media hype and speculation can create huge expectations and comment on the likely success or failure of the roll out of a new brand; but what about the location analysis and property implications?
Retailers often experiment with new formats, particularly when they are publicly traded, and by no coincidence are seeing comparable store sales slowing and/or competition intensifying. There is the expectation from the City to identify the next big vehicle for growth, whether through bricks and mortar development, ecommerce or new joint ventures. For bricks and mortar this tends to lead to property teams being under intense pressure to simply get the first few stores open as quick as possible. This can lead to all the diligence and analysis (& sometimes financial discipline) which goes into opening a core format store being thrown out the window for the new venture.
Tesco’s first Jack’s in Chatteris, Cambridgeshire, opened on 19th September. This had previously been a mothballed £20m store left over from when the development pipeline ground to a sudden halt in 2014. Store two in Immingham, North Lincolnshire is of a similar ilk, and was opened on the same day. A mere two weeks later, on 4th October, two stores opened in Merseyside which are converted legacy Tesco metro stores. Next on the list is a similar store in the suburbs of Birmingham. This is to get 10-15 Jacks stores open as quickly as possible to truly test and learn. To put in context Aldi plan to open 60-70 stores this year.
In the US the first three 365 by Whole Foods Market store openings followed a similar path to Jacks. The first grocery store was earmarked for a regular Whole Foods, already a signed deal, and quickly got “flipped” to a 365. The truth is probably any Whole Foods Market format would have done well in Silverlake, CA due to the affinity of the brand and demographics in this part of California. In the Pacific Northwest two stores quickly followed – Lake Oswego, OR a forced divestment of an Albertsons grocery store post-merger with Safeway and Bellevue, WA a closed JC Penney department store – both sites were readily available, easy to convert & fit out. The latter store in Bellevue closed just prior to its first birthday after not meeting expectations. Two and a half years since launching, 365 by Whole Foods Market consists of ten stores, with further growth publicly announced the format continues to evolve.
The make or break of new store formats
Despite the success of this format in the US, the only country in Europe where established supermarkets have successfully competed with the likes of Aldi and Lidl is France. Sainsburys attempted a similar concept in 2014 by entering into a partnership with Netto, which ended two years later with store closures as they failed to expand quickly enough.
The make or break of new store formats, and the pace of their rollout, are often quickly decided by the first few openings before senior leaders move onto the next initiative. So why is it often the case that sometimes sub optimum locations are selected in the quest for growth?
If you were building out a disciplined network plan in a multi-channel environment which deliver maximum returns would these be the first locations on the list to launch with? Are these easier locations a way to get stores open quickly to test, learn and evolve? Or are they trying to address any legacy issues elsewhere in the business? The Tesco strategy with Jacks for this first phase is definitely low capex and low risk whether these locations demonstrate the true potential of the format only time will tell. One thing is certain in an ever competitive and complex environment gleaming good customer insight and understanding the spatial interactions between formats and channels demonstrates that location analysis is more important than ever.