Why US grocery stores are shrinking

While big box grocery stores still loom large, a growing number of smaller stores with limited inventories are popping up in urban areas

April 02, 2018

Major chains like Aldi and Trader Joe’s, which flourish in compressed spaces, have steadily been opening stores in urban locations and mixed-use projects. But grocers better known for their traditional-sized suburban stores are also increasingly leasing smaller properties.

The midwestern chain Meijer, for example, has announced plans to expand its small-format Bridge Street Market store to more cities. In downtown Grand Rapids, Michigan, Meijer’s new 37,000-square-feet store will be less than one-fifth the size of its typical store and will focus on fresh produce and ready-to-eat foods.

“The traditional concept of a grocery store is changing. We’re seeing more smaller boutique brands with specialized inventories,” says James Cook, Director of Retail Research at JLL. “Traditional and niche grocers alike are increasingly considering — and actively leasing — smaller spaces in line with changing consumer food shopping habits.”

Small spaces offer big perks

In this $668.7 billion industry, retailers don’t take real estate strategy decisions lightly. First and foremost, according to Cook, the strategic shift to smaller stores is all about the availability of real estate. Densely populated areas don’t tend to have extra acres lying around for the traditional superstore.

“In an urban setting, competitive rent and high square footages are much more difficult to find than in a suburban setting,” says Cook. “That’s why even typically big-format, mass merchandisers like Target or Walmart have been setting up smaller shops — so they can reach their city customers without taking on crushing rents for larger space that’s almost impossible to find.”

Yet smaller stores in high foot traffic locations are also a better fit with busy urban lifestyles. A smaller store can offer more convenient access to the products customers want from the store, an increasingly important factor as consumer shopping habits change. For many people, popping into a store on the way home from work to pick up ingredients for dinner is a commonplace occurrence. Meanwhile, half of U.S. shoppers visit three or more stores to get food and household supplies.

And even as consumers increasingly turn to e-commerce sites for paper towels, deodorant and other basics, people still want fresh food, interesting experiences and value, according to JLL’s Grocery Tracker 2018 report. They just want to be able to get all those things more conveniently than before.

“Everyone is busy today, but no matter how convenient it is to order goods online, the majority of consumers still want fresh products, and they want to pick them out personally,” says Cook. “In more condensed stores, we see grocers giving more shelf space to fresh produce, premium meats and ready-made foods. If products don’t have high turnover, they’re taking them off the shelves, and perhaps making them available for online ordering.”

Moving with the times

While Cook expects that smaller square footages will become more common across the country, he warns against making any sweeping generalizations. “There’s no one-size grocery store of the future,” he says. “Variety is good for consumers and good for the market — plus grocers know what works in dense urban areas is different to rural and suburban areas.”

As an example, he points to a mixed-use development in Dallas’ urban core, where the local chain Tom Thumb plans to open a full-format 60,000 square-foot store in a grocery-starved area. “There’s an advantage for grocers who can find a way to provide a full product offering in urban areas where it’s not expected,” says Cook.

No matter the size of their footprint, retailers are looking for ways to reach the widest number of people within their customer base in the most economical way. That means using physical space as effectively as possible as part of a comprehensive omnichannel strategy. From online shopping, to grocery delivery and click-and-collect digital platforms, grocers are striving to give consumers the convenience and choice that will keep them loyal.

“The grocers that can deliver the right in-store experience, combined with the right online pickup or fulfilment plan — those are the ones that will thrive, whether their stores are 15,000 square feet with limited products or take up a footprint four times as large,” says Cook.

Indeed, customer experience trumps store size every time. “If consumers can easily find what they want and pay for their goods quickly, they are likely to become repeat customers. If they have a bad experience, the odds are they are not coming back,” says Cook.