Hypermarkets suffer midlife crisis; Fifty-year-old concept seeks relevance in modern era

June 16, 2013 11:39 am

Hypermarkets suffer midlife crisis

By Scheherazade Daneshkhu in Paris and Andrea Felsted in London

Miniskirts and the beehive were all the rage, The Beatles topped the charts, push-button telephones were launched – and the firsthypermarket was born.

“The Times They Are a-Changin’,” sang Bob Dylan in 1963, the year that Carrefour’s new “everything under one roof” concept opened the doors to a revolutionary new way of shopping.An excited crowd of 2,500 people poured into the store at Sainte-Geneviève-des-Bois, 20km south of Paris on June 15 to experience the novelty of buying groceries, fresh food, DIY and clothes in a shop three times bigger than the norm.

Self-service, free parking and an on-site petrol station – at the height of the car-buying boom – proved enormously popular and the shelves had to be restocked several times a day.

“I was immediately struck, and even intimidated, by the size of the shop – there were thousands of products everywhere,” recalls Alice, one of the shop’s early cashiers, in a set of anecdotes collected by Carrefour for the anniversary. “Moreover, it was the big store everyone was talking about; people came from all over Île-de-France by car to do their shopping here.”

According to Andrew Seth, author of The Grocers and Supermarket Wars, the early hypermarkets “satisfied a very primary need, which was one-stop shopping. It was just marvellous because people had been used to having to run round six stores, and suddenly there was this wonderful advantage of being able to do everything at one till.”

However, like many 50-year-olds, the hypermarket is going through “a midlife crisis” in the words of Georges Plassat, Carrefour’s chairman and chief executive, who has been battling poor performance at the world’s second -largest retailer by sales after Walmart of the US.

When petrol prices were low in the 1960s and early 1970s, families thought nothing of driving 40km for the convenience of stocking up on everything from tomatoes to tennis rackets. Today, shoppers have many more alternatives to the vast stores on the edge of town, and industry figures show that many are moving to other formats.

Competition has also intensified. Many of the hypermarkets staples, such as consumer electronics, have migrated from supermarket shelves on to shoppers’ laptops, with online transactions now accounting for about 10 per cent of total retail sales in the US and UK. In France, other groups such as Leclerc, Auchan and Casino have been snapping at Carrefour’s heels.

Leclerc, which has smaller hypermarkets than Carrefour and consistently low prices, overtook Carrefour in France for the first time in May in terms of market share, according to Kantar, the market research group.

The economic downturn has also transformed shopping habits. In an effort to avoid temptation, many with strict budgets are staying away from the big stores altogether and so-called hard discounters, such as Aldi and Lidl, which tend to have smaller stores often closer to town centres, have proved a more attractive alternative. In the year to May 12, Aldi’s sales rose 30 per cent year-on-year, while Tesco’s rose just 2.4 per cent, according to Kantar.

Clive Black, analyst at Shore Capital in the UK says hypermarkets have to “find a new relevance. That is something that retail managements all over the world are trying to grapple with”.

The problem is most pronounced in the US and continental Europe where hypermarkets can exceed 200,000 sq ft – the size of two-and-a-half football pitches. Some groups have reduced space by selling it off or renting it out; others have tried to “reinvent” the hypermarket as Carrefour tried and failed to do three years ago with its Planet concept, adding beauty areas, crèches and sushi stands to the mix. In the UK, Tesco has acquired Giraffe, the family-friendly restaurant group, and bought a stake in the Harris + Hoole coffee chain, in an effort to make its stores more inviting.

Though hypermarkets in developed markets are struggling, the story is different in Asia and Latin America where sales are growing at a rapid pace, helped by emerging middle classes, rising car ownership and bigger families than those in the west.

According to Planet Retail, sales at superstores and hypermarkets are set to increase by 4 per cent in North America between 2011 and 2016, with just 2 per cent growth in western Europe. But, they are forecast to rise 7.5 per cent in Latin America and 9 per cent in Asia.

However, even in France, 1m people visit a Carrefour store a day and 90 per cent of the population go to one of the country’s 1,900 hypermarkets at least once a month.

At Sainte-Geneviève-des-Bois, the Carrefour is three times bigger than it was in 1963 – 8,000 sq m – and receives 1.7m customers a year.

Nevertheless, the golden age of the hypermarket in advanced economies is over, as it struggles to find a place in a world where an iPad mini is more fashionable than a miniskirt.

While talk of the death of supercentres and large hypermarkets invoked by critics may be premature, they “undoubtedly have got a health warning hanging over them”, says Mr Black.