Author: Liz Wells
A bigger shop is not necessarily a better shop. While that might seem obvious, it is definitely worth thinking about the importance of size to a convenience store. In one sense, more space has obvious advantages – a wider range, more space for staff and customers to move about, room to offer additional services. On the other hand, less space can mean more disciplined shopkeeping. You might be more likely to buy the right things, put them in the right place and keep everything well-stocked at all times. For these sorts of reasons, some will argue that a small but tightly run store beats a big but loosely run shop every time.
Stores below 1,000sq ft have passionate advocates who argue that not only is it possible to have a well-run small store, but that it is fundamentally better to be small than large. Consultant Scott Annan is among the fans of what we would regard in the UK as the smallest category of convenience stores.
He says: “You will get plenty of people arguing not only that any stores over 3,000sq ft are an indulgence, but that you can do everything a convenience store needs to do in under 1,000sq ft. For global convenience store groups, average store size is 1,000sq ft and there are good economic reasons for that.” Those include cheaper rent and other costs, such as business rates, plus the belief that you can get most of what shoppers really want into shops of this scale. You also need half the number of tills and fewer staff.
Of course, some places are a more natural fit for small stores than others. The case for sub-1,000sq ft stores is particularly strong in what Annan calls “ultra-urban” locations and anywhere that space is at premium. But it is no longer just the ultra-urban locations that are expensive. You don’t have to be in central London for rental costs and other overheads to be a major factor. This is why, for the purposes of convenience stores, Japan is a particularly good country with which to compare the UK. Densely populated and with high rents, the Japanese market is in some ways a better likeness for ours than the USA, where square footage is more readily available everywhere, except in some of the biggest cities.
There are lessons in the way the micro-convenience stores are run in Japan too. Just because they are small, does not mean they are not busy. This means, says Annan, that 95% of Japanese convenience stores get deliveries of fresh food three times a day. Almost all the rest get two a day. It therefore takes efficient logistics to run an effective small shop. It also takes good stock selection. Smaller stores need to focus on what their customers buy regularly rather than occasionally. This reinforces what most stores that regularly analyse their sales data already know – that they stock too many ambient goods and not enough food-to-go and fresh produce. Small stores force operators to do what advisors have been telling them for years: stock what sells and not the ‘shelf-warmers’.
Key figures in the UK convenience store business are keenly aware of this. Tim Chalk, chief executive of Simply Fresh, says too much space gives products “the opportunity to hide” and believes the future lies with more fresh food in smaller shops. He says: “Smaller stores cost less in rent and tight space means you have to use that space more carefully.” Chalk, who spent several years running the 7-Eleven group in Hong Kong and Macau, where average store size is 650sq ft, knows more than most what it takes to run a good small store. He says: “You really do have to make sure you have no dead stock, be very tight on ordering and have a much smaller backroom. Several deliveries a day are needed and smaller pack sizes make more sense.”
For those retailers who own their shops – and so have no rent – Chalk still counsels that they might not need so much space for their own operation. He says: “If you own your own shop, you should still be looking for a return on capital. You are a landlord, and to maximise that return on capital, you should probably be looking to make more income from it.”
Despite the potential advantages of smaller stores, there is no clear indication they are becoming more prevalent. Figures from the ACS Local Shop Report 2018 show the proportion of independents under 1,000sq ft stands at 58%, a figure that has fluctuated over the past five years without showing a consistent trend.
Even so, there is an increasing sense within the sector that small stores might be one of the keys to the future. Jas Randhawa, who runs the Simply Fresh on St James’ Park tube station in London points to the fact that even the big supermarkets are now routinely opening more small stores than big ones. He says: “It just seems to be the way things are going. Why rent 3,000sq ft when you only need 2,000sq ft? Landlords have had it their own way for far too long.”
Jas Randhawa runs four shops, with a fifth in the pipeline, and he is a big believer in small formats. One of his stores, the Simply Fresh in St James’ Park underground station, is just 800sq ft in size and benefits from a steady flow of traffic from the tube and offices all around. Rent is not cheap at £85,000 a year, with £30,000 in rates on top of that, so Randhawa is keen to keep his shop full of things that sell. If something doesn’t sell, it doesn’t last long on the shelves.
Suppliers are a wide mix. Ambient deliveries come mostly from Costcutter, while the chiller is filled with a blend of products from Nisa and a selection of independent suppliers. There are about four deliveries a day to make sure everything lives up to the name of the shop.
Randhawa’s other shops include a second Simply Fresh and two unbranded stores. His latest venture, in Uxbridge on the outskirts of west London, will be a Simply Fresh Local and at just under 500sq ft, it is even smaller than the St James’ Park store. “You make your choice on space dependent on local conditions, but I definitely think small stores make sense nowadays in lot of places,” he says.