The pandemic has accelerated the growth of the online grocery market. According to the latest CBRE research, food and groceries’ online penetration reached 13% in 2020. Following this rapid shift, the question for supermarket operators must now be how best to deploy capital to meet this demand, and to determine whether this consumer migration to online is temporary or permanent?
Repurposing a portion of an existing store to service the online function might not seem to immediately justify itself from an investment perspective, especially if the online sales are in place of in-store sales. But it will surely be more compelling for stores that are owned outright and have long since been bought and paid for.
Some stores that were constructed or extended a decade ago are now oversized and suffer from weak trading densities. Reutilising space for online penetration may show a healthier return than the status quo and, in turn, make the justification for the capex more compelling.
Use of space
Asda and Sainsbury’s are closing some of their ‘dark stores’. On the face of it this may seem counter-intuitive, but in a world where rents on these industrial properties are booming it may well make more sense to utilise existing supermarket real estate, which tends to be more centrally located to better serve their customer base. The closer the customer, the more efficient the online operation is, as travel distances are compressed and multi-drop deliveries are concentrated into a reduced catchment.
Another advantage to this approach is that it is possible to react to behavioural changes to consumer shopping patterns more quickly and scale-up or scale-down an instore online facility, as staff can be redeployed instore or additional staff recruited where necessary. This is far speedier than constructing a new fulfilment facility, where timelines associated with the development of complex dark stores are lengthy.
Supermarkets also have the scope to offer click and collect, which is more cost-efficient for the operator and may have the added halo effect of the customer also undertaking a further in-store shop while collecting their goods.
The difficulty for the supermarket operators will be in deciding how to treat sales analogues and shopping behaviours from the past 14 months. One swallow doesn’t make a summer, and thus we expect existing supermarket real estate to play an increasingly important multi-functional role going forward.
Adrian Hanley is director, retail, at CBRE
