Should You 'Build' Big Stores Or Small Stores?

by Paul Schlossberg
Posted On: 1/6/2020

  • Printer Friendly Version
  • Decrease Text SizeIncrease Text Size
  • PDF


Do you ever think about how big your stores should be? It applies to how effective your current stores are and to decisions you would make concerning adding new stores.

On Aug. 2 on CNBC there was a discussion about retail market trends and related developments. Paraphrasing here: according to Jerry Storch of Storch Advisors, “There is two to three times the retail floor space needed in the U.S. Retail brands will have to be closing stores…”

Now, you might wonder whether it’s a good idea for you to be opening new stores, whether bigger or smaller, if the retail store business has so much excess capacity. We’ll explain, later, about the risks of not taking action now in this very tricky retail environment.

Let me define “big stores” for you. In this case it concerns: (1) how many product categories and individual products to offer; (2) and the number of vending machines to place; (3) or the linear feet of micromarket merchandising space to deploy; (4) or the types of OCS and related beverage equipment to put in service.

Do not limit your thinking to the typical set-ups at the locations you serve. If you’ve been paying attention to local convenience stores, you will have noticed that they have expanded. As c-stores have made food sales a priority, floor space inside has increased for easier access and more effective merchandising. You’ll find some of the bigger c-stores these days are 4,000 or 5,000 sq.ft. or even larger.

We do not have to be thinking about adding thousands of square feet of selling space to our stores. But we do need to consider how we can use more space to offer easier access and more effective merchandising every day.

It doesn’t matter if you’re pitching new business. Maybe you’re meeting with a current account that plans to expand its operations and staffing. How do you decide on the “store” you will propose? Will it be a vending bank or a micromarket? Maybe it will be an OCS installation and/or a hydration station. Always use the word “store”– because you’re in the retail business.

What are the most important factors influencing your decision? The most critical question is “Should this be a bigger store or a smaller store?”

You’re probably wondering why the size and scope of the store should be such important questions for you to consider.

You’re well aware of what can drive your decisions when responding to an RFP. To understand the equipment, products and services required, you’ll have a lot of questions to ask. A few, for example, and in no particular order:

» The number of people working at the location. Is the workgroup a relatively fixed number of people? Or will there be surges and fall-offs in staffing based on seasonal or peak project requirements?

» The days and hours for the workforce.Is it a fiveday operation (Monday to Friday)? Will people be working on weekends? When, at what time, do people typically arrive and depart? Are there established times for breaks and meals?

» The competition. Which competitors are nearby? How far away is the competition – fast food restaurants, convenience stores, etc.? Never forget about the 15-minute drivetime (or walking-time) which is generally the maximum people allow (to go from work) to purchase a meal (typically, that is lunch). By the way, if you’ve done your pre-planning well, you’ll already know about the closest competitive food options.

» The demographics. What can you learn about the shopper base? The products you’ll sell and the equipment you’ll need will largely be determined by how well you meet the food, snack and beverage preferences of the work population. That means gender, age cohorts, ethnic groups, religious dietary requirements, etc. And, don’t forget that it’s important for you to really understand the work being done. People doing different types of work will eat and snack in unique and distinctive patterns. Be aware of blue collar, white collar, pink collar, gray collar, or some combination of any of those groupings.

You must get answers to the questions above, and some others as well. With that done, you’ll have a reasonably good idea of the specific deployment and service plan necessary to meet the needs of the site.

By now you’re thinking, “I already know this stuff. I’ve got this. My company can do this without a lot of effort.” If you believe that, you’re wrong. Here is why. A lot of very smart companies are making major investments in new store formats. They see opportunities to change how they meet the needs of the shoppers they serve. They’re operating with highly skilled and experienced teams focused exclusively on store design.

You’ll see, below, that while some of these initiatives might start out as limited test stores, the companies involved have the resources to expand quickly if they get positive results. Are you ready for an entirely new bunch of competitors?

One of the retail developments we’ve been watching is what we’ll describe as the “big/small paradox.” Allow me to describe what may be happening. It seems that retail brands with big stores are opening smaller stores. And, conversely, retail brands with small stores are opening bigger stores. What is the rationale for these new and different retail strategies? Why are they making such significant changes? Let’s look at some examples and dig into what might be driving these new store initiatives.


1. Convenience stores: These are smaller stores compared to supermarkets. They are building bigger stores at a fast pace. According to the National Association of Convenience Stores 2018 State of the Industry Survey, the average size for convenience stores was 3,230 square feet. To help demonstrate that the stores are getting bigger, we could dig out prior year(s) data to show the growth history. But NACS provides very useful data in the current report. New stores are clearly larger than the current average. Specifically: in rural areas the average new store is 4,991 square feet; new urban stores are 4,603 square feet. As noted above, the increasing emphasis on food in convenience stores is one of the primary reasons why c-stores are getting bigger.

2. Did you know that Whole Foods has opened a convenience store in New York City? It is the Whole Foods Market Daily Shop. The location is at 7th Ave. and W. 25th St. That is the Chelsea area – an upscale Manhattan neighborhood. According to statista.com: “In 2017, Whole Foods Market’s stores had an average size of 40,000 gross square [feet].” Here we see a company with relatively big stores (although smaller in size than major supermarkets), opening a smaller store. According to Food &Wine: “The Daily Shop offers brand new self-checkout  perfect for grabbing an Allegro or Bulletproof coffee, fresh juice or kombucha on tap, a quick snack or Build Your Own Açai Bowl on the go.” The store also has a local focus, “carrying Gotham Greens, Balthazar breads, New York Bagel, Dunwell Doughnuts, Dough Doughnuts, By the Way Bakery cakes, Lillys cookies and more.” Imagine a future with Whole Foods (and its parent company, Amazon) in the convenience store business in a big way all over the country.

3. PhillyVoicereported that Giant stores, owned by Ahold Delhaize, announced in August the second Heirloom Market would open in Philadelphia in September in University City. Here is another supermarket operation working on smaller stores for the convenience of its shoppers.

4. Target, from an article in Inc., has almost 100 small stores deployed. The new stores are roughly one-third the size of its traditional units and “… are the company’s most productive … [Target] plans to open as many as 30 per year over the next few years, in contrast to only two (big) traditional-format stores opening this year.” We don’t have to remind you that Target operates bigger stores. Now we see this mass merchandiser brand working to develop a new generation of smaller stores.

5. Fast food restaurant chains, McDonald’s, Burger King, et al.are building smaller stores. They do not require the seating capacity which was designed into their stores for many years. Why? Their business changed. More and more customers stay in their cars and order at the drive-thru. Many of their restaurants now do half of their sales or more at the drive-thru.

6. “Pizza Hut plans to close hundreds of U.S. units,” according to restaurantbusinessonline.com. “About 3,000 of the chain’s more than 7,400 locations are primarily dine-in ‘red roof’ locations, but the company is planning to replace only the underperforming dine-in restaurants with takeout units. Not all dine-in locations are set for replacement.”

Pizza is increasingly a delivery business. Parent company Yum! is realigning how it goes to market in this very competitive category. If people are not dining in at fast food restaurants, then these brands will have to change their restaurant investments and bring new operations and designs to market.

What does this mean for us?

We can learn a lot from the changing dynamics of retail and restaurant design trends. Here are few things to keep in mind. Don’t forget that people, our shoppers included, want to spend their money in places they like. Specifically, for your consideration:

1. Do not be locked into thinking that your current store formats and layouts are perfect for the future. Your next new store, or remodel, should be designed starting with a blank sheet of paper and a list of well-organized questions.

2. Pay careful attention to changes at current accounts. If they are changing, you must be prepared to respond quickly and in a positive manner. Have they added people? Are their operating days or hours being modified in ways which require service adjustments in equipment and products?

3. How well are you doing in winning RFPs for new business? If you’re not satisfied with the results of your new-business selling efforts, what do you need to change?

4. Are new competitive alternatives (fast food or convenience stores in particular) cutting into your sales at key accounts? You should be tracking sales trends in detail, especially at your best accounts. If you notice any downtrends, dig into the data and get into the local area to see what is new and different.

5. Do you have opportunities for bigger stores? Which of your current locations would benefit from an expansion of merchandising space and the addition of product categories and new SKUs? It might be a worth a test or trial run at one or two accounts.

6. Are there opportunities for smaller stores? How about placing a soft drink vending machine and maybe a snack machine as well in a “remote” area at a client site? Judge the opportunity this way. If people have to walk more than 10 minutes (from their work areas) to the breakroom, it might pay to place a “small store.” And there are good reasons to believe that the time constraint might be five minutes.

Should you be focused on bigger stores or smaller stores? If you want to sell more stuff, it will take new thinking about your stores. Then you can decide if you need bigger stores, smaller stores or maybe some of each.

PAUL SCHLOSSBERG

Paul Schlossberg is president of D/FW Consulting, working with clients to merchandise and market products in impulse-intense selling environments, such as vending, onsite foodservice and convenience stores. Based in the Austin, TX, area, he can be reached by emailing to Paul@DFWConsulting.net, calling him at (972) 877-2972. The company is online at www.DFWConsulting.net.