The hypermarket is under pressure.

The hypermarket is under pressure. Decline is inevitable, the format was groundbreaking in the 1980s. But this also opens up space for innovations, writes Daniel Lucht, Research Director at ResearchFarm. Retailers confronted with shrinking sales densities are trying to reduce their exposure to unproductive space. Among the initiatives employed are the obvious, the innovative and the truly radical.

More obvious solutions have seen retailers trying to integrate the format with online:

  • by opening drive thrus and click & collect solutions, locker banks or dedicated pick up points.
  • by bringing online technology into the store. Trials have included smart shopping carts, augmented reality, location tagging, self scanning, price checking, mobile payments – but often these solutions interrupt the shopping journey. In most cases they won’t bring about transformational change either.
  • by renting out space to concessions (Sainsbury’s and Argos, Tesco and Arcadia etc). In France, Casino has more or less outsourced its non food business to Cdiscount, the online marketplace it acquired years ago. The hypermarket has started to rent out space in store to the 3P businesses, who then bring online pricing to the physical shop floor and of course take on the risks of retailing the non food categories. This has added such flexibility and been so successful, that Carrefour has copied the strategy with the Rue du Commerce acquisition. By owning 3P platform businesses these grocers tap into strong online growth too.

Moving from the obvious to more innovative solutions:

Across the EU the old weekly market on the main city square has been revived, updated and brought under one roof. This has borrowed heavily from the original hypermarket concept in grouping all categories together to enable a quick weekly shop in one go.

Especially in the Netherlands both the introduction of food service elements and the addition of organic, local, artisanal, health & wellness, independent and hipster businesses and brands have been a huge success. Niche brands have the authenticity benefits so sought after and are a real footfall draw. Innovative hypers have tapped into the rise of street food, pop ups and the revival of markets.

There are different versions – business models almost solely based on independent traders (Landmarkt Amsterdam), a mix between artisanal and chained operators (to cover the categories the independents aren’t good at, Rindermarkthalle Hamburg) and the prevalence of food service in the mix (Jumbo Breda or Torvehallerne Copenhagen). Tesco has attempted something similar with its Watford store, but the concepts described here are far more radical – and crucially often have no non food at all.

Whilst these new concepts are huge footfall draws, they will not work in every location. If revitalisation attempts fail, then retailers should use the space so it is still producing value for the business.

If the store is owned by the retailer, rather than rented or sold and leased back, then a couple of different options are available. This presupposes a different economic model than retail. Residential/office/warehouse etc have other real estate dynamics, income streams and yields.

Retailers could use part of the buildings to get into the huge real estate demand for shared office space for start ups and smaller businesses. Especially if the start ups work with the retail sector, keeping them close to the business could yield real benefits. Retailers could then – apart from charging rent – keep new ideas close and integrate innovations into the main business.

Retailers could also use the sheds as server farms. These could store crucial business data and the big data from customer touch points in a private cloud, with perhaps much better safeguards against hacker attacks.

Finally to the more radical possibilities:

One option would be turning sheds into warehouses to fulfill from. This would involve opening up to 3P businesses and potentially competitors and using the hypermarket space for online deliveries. After all many hypermarkets are in perfect locations for this, near conurbations and residential areas, so they would function as de-central depots. Crucially links to established B2B supply chains are up and running. Instacart or Uber could work well in combination with such out of town depots.

Alternatively, one could combine hypermarket space with UAVs. Solar panels apart, many hypermarket roofs are dead space at the moment. One could now use drones and robots to make urban farming a reality, all access needed would be a lift shaft. The heat exchange from the fridges could be used for powering green houses on top of hypermarkets – to grow vegetables locally and sustainably. Already companies are working on this.

If nothing else works, dead hypermarket space can still be turned into flats.

Learn more in our latest report Store Of The Future 2016: Hypermarkets.