Competition causing large supermarkets to struggle with space

Posted on 5 January, 2015 by Chris Grigorovsky

The big supermarket chains, such as Tesco and Morrisons, are facing a slight challenge in 2015, as larger store openings are seeing a decline. With customers having other alternatives like online shopping, as well as the smaller discount stores of Aldi and Lidl, the need for expanded space are not required.

man with shopping cart with food produces in supermarket

The size of space required has seen a significant decline since 2013 by almost half, with the figure expected to be at 1.5m square feet in 2015, compared to two years previously when it was at is peak, with 3.2m square feet being used according to property consultancy.

There are some stores that are making different use with the spare space by adding other sectors like gyms, catering and even Sports Direct stores in certain Tesco branches. An analyst at Sanford Bernstein, Bruno Monteyne, also sees similar situations occurring, with some places adding facilities like hairdressers. He also adds that he expects to see the increase in ‘dark stores’ making an appearance in branches with a big enough space. Dark stores are storage areas for online orders made by customers.

Sainsburys are one of the other retailers to make sure they are using their space efficiently, with the chief executive, Mike Coupe saying that they will be working with selected third parties to ensure the space in a quarter of stores in the next five years is filled.

Director in the retail team at CBRE, Chris Keen, roughly estimates that 2015 will see a decrease in around half of the big supermarket openings. In relation to this, Goldman Sachs sees an uncertain future for supermarkets and predicts that they will eventually close. They advised that the major chains should close at least one in five stores to make sure profits are protected.

To Charles Maudsley, head of retail at British land however, the idea of all stores closing is not seen as the eventual outcome. He said that as long as there are stores in good locations, where competition around them is quite minimal, there should be nothing to worry about.

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