Europe's grocery convenience multi-format growth path

Supermarket chains in Britain, France and Germany are reaching new customers, winning market share and strong sales with new formats and multi-channel strategies. Major investments are being made in new and refurbished grocery convenience stores more closely matching convenience store sizes that are beating sales at larger stores.

Convenience stores in France are outperforming the total grocery market and are spearheading format development, according to a new report from Verdict Research, European Grocery Retailers 2009.

Report co-author, Simon Chinn, said that despite the downturn convenience is in a good position. "In the current economic climate, convenience is doing surprisingly well," he said. Mr Chinn highlighted France in particular as a market where convenience retailers are growing ahead of the overall market.

Carrefour's French supermarkets and convenience stores posted the group's strongest results in 2009. At Carrefour hypermarkets (3000-5400 square metres), which contribute 57% of group turnover, sales fell 2.5% ex petrol. Supermarket sales through Carrefour Market were up 3.8% (ex petrol) in 2009 with 900 stores converted to the banner.

CEO of Carrefour, Lars Olofsson, said that convenience is the star-performer in the Carrefour business, while a relaxation of planning laws in France is also poised to benefit smaller stores and discount retailers. "Overall convenience format sales were up 0.9% like-for-like in the fourth quarter," he said.

"Sales at newly converted banners Carrefour City and Carrefour Contact (65 stores converted) rose by 30%. There is a lot of demand for convenience due to ease of shopping and proximity."

Carrefour is trialing two new convenience stores in France: Carrefour Contact (400-900sqm) and Carrefour City (350-600sqm). The City banner is opening in Paris and regional cities as a part of a strategy for a multi-format single brand.

Carrefour City is a new urban convenience store designed 'to make life easier for urbanites who live or work nearby' stocking 6,000 products with opening hours of 7am to 10pm/11pm. Stores are laid out in two distinct zones: ready-to-eat, fresh and ready-to-reheat products; and a comprehensive range of everyday products including groceries, breads, cakes and pastries, snacks, international and deli foods, organic products, cosmetics, household, frozen, dairy, pre-packaged meat, and Carrefour house brands.

Carrefour City offers two versions: Convenience for town-centre locations; Neighbourhood for residential and outlying areas. Sales turnover per store is 2-10 million euros ($2.9m-$14.7m AUD) with an average basket size of 7-15 euro ($10-$22 AUD). Carrefour Contact are neighbourhood stores for daily shopping stocking 8,000 products with opening hours 8am-10pm.

Casino expands Franprix convenience

Casino convenience stores in France have resisted the sales downturn affecting larger formats such as Giant Casino hypermarkets and Leader Price stores. CEO of Groupe Casino, Jean-Charles Naoui, said 2009 French sales declined by 3.8% on an organic basis, or 2.7% excluding petrol. "Convenience formats held up well, thereby demonstrating their good fit with consumer expectation," he said.

"Sales in convenience stores were down 1.7% on an organic basis (excluding petrol). Sales were stable at Casino Supermarkets and Monoprix supermarkets (1800sqm). Convenience trading margin remained high at 4.9%. Same-store sales at Franprix were stable, attesting to the attractiveness of the banner."

Franprix new store concepts recorded a 15% sales increase. With an average store size of 440sqm, Franprix is the 'shop around the corner' grocery convenience store for people who shop every day and it stocks a broad assortment of products. Banner revenue for 787 Franprix stores in 2009 was 2.1bn euros ($3bn AUD), with 50-60% of stores franchised.

Casino has a target for 1,000 Franprix stores by 2010 and is expanding the chain outside of Paris to other French cities. Casino also operates Petit Casino and SPAR convenience formats.

Rewe backs small supermarkets

Rewe Group, Europe's third largest food chain, reported in March that 2009 sales grew 2.7% to $50.9 billion ($75bn AUD). German food stores were Rewe's strongest market, with 5.9% sales growth in 2009. At over 3,000 Rewe Markets independent supermarkets, sales grew by 4%, compared with flat food sales nationally. Rewe Group is rolling out a multi-format strategy across Europe to broaden its customer base.

Major concepts operated by Rewe in Germany are: REWE City, small supermarkets with sales floors from 500 to 1000sqm; REWE Markets, full service supermarkets (1,000-3,000sqm); REWE Center hypermarkets (3,000 to 5,000sqm); Penny Market discount supermarkets; Nahkauf markets (150-500sqm); and home improvement stores.

Launched in May 2009 were plans to open 170 Rewe City Markets as a grocery convenience store for cities with a wide assortment of 8,000 products, focusing on fresh products, international brands and premium products. One of the first locations for Rewe City was a 660sqm store at Düsseldorf airport that has opening hours from 5 am till midnight.

Rewe Group advised that the Rewe City concept is not about price but about location and assortment with a broad allotment of fresh and convenience products. "Besides price, for more and more customers proximity plays an important role, and we cater for customers who want to shop when their personal schedule allows, with extended business hours of 7am-10pm or midnight," a Rewe spokesperson said.

Another development is an interior upgrade of the 1,200 franchised Nahkauf neighbourhood convenience chain in Germany, where sales fell by 2.1% in 2009. A first test store for the revamped Nahkauf in Frankfurt has produced encouraging results, with sales up 4.0% in the first few weeks following the refurbishment.

UK ramps up multi-channel offers

Leading food retailers Tesco, the Co-operative Group, Sainsbury's, Morrisons and the John Lewis-Waitrose partnership are expanding grocery convenience formats on the back of strong third and fourth-quarter sales increases in convenience. The convenience sector is set to continue to outperform the total UK grocery market over the next five years, according to new IGD research. IGD said the convenience market is projected to increase by 37% from £30.3bn ($50.3bn AUD) today to £41.4bn ($68.7bn AUD) in 2014.

Tesco is performing well in supermarkets and convenience stores and aims to open 20-25 new One-Stop stores per year on the back of growing customer numbers. Chief executive David Turner does not believe there should be an optimum size for the chain.

Since Tesco acquired One-Stop in 2003, it has converted half of the 870 stores into Tesco Express. The One-Stop format (125sqm) offers the convenience of a neighborhood store, long opening hours and a range that includes groceries, snacks, beverages, alcoholic drinks, newspapers and magazines. Tesco operates over 1,000 Tesco Express convenience stores (up to 280sqm) offering customers great value, quality and fresh food close to where they live and work. Express stores range up to 7,000 products including fresh produce, wines and spirits and in-store bakery.

The John Lewis Partnership announced on March 26 an expansion of its multi-channel strategy with the first of four Waitrose smaller convenience (185-370sqm) stores to open in Cambridge mid-year. The 280sqm store will focus on three key areas: food for immediate consumption such as sandwiches, salads and deli products; food for later consumption such as its Menu From range and fresh meat and fish; and everyday items such as health and beauty and household cleaning. Waitrose has already opened five successful convenience stores (465-650sqm).

UK retailer Sainsbury's accelerated space growth is bringing over 100 new and extended supermarket and convenience stores to customers. "Our convenience estate delivered a strong underlying performance and we opened a further 24 stores bringing the total opened this year to 51," Sainsbury's said.

In contrast to Europe and the UK, Australia's larger national supermarket and convenience store groups Coles, Woolworths and 7-Eleven Stores have a 'one size fits all' approach to non-petrol stores. While the IGA mid-tier store stagnates, Metcash has pushed third-tier IGA X-press stores to move into IGA or smaller Friendly Grocers. However, SPAR and FoodWorks are opening more contemporary smaller formats often tailored to the local demographic.