CPG Matters Assortments, Stores to Shrink as Urban Populations Grow

Published By : CPG Matters

Populations in urban areas are increasing, and the fastest growing type of grocery store there is less than 20,000 square feet. That means changes are coming in available shelf space, assortments and category management.

“With reduced selling space and assortment, category management decisions must be more tightly linked to the urban retailer shopper and the trip type,” says Joe Bourland, director of category management and shopper insights for Kimberly-Clark.

By 2050, 60% of the world’s population will live in urban areas, he reports. “We see projections indicating much faster sales growth from stores with less than 20,000 square feet than the bigger store formats,” he notes, commenting on research by Fractal Analytics, a firm based in San Mateo, Calif.

“Trips are on the decline overall, but small format retailers are merchandising differently to change their type of trip. Where shoppers used to go to smaller format stores for specialty items or urgent need trips, we’re seeing them grow in fill-in type trips by improving their assortment in food, household paper and cleaning products, and baby care needs,” he said.

While larger box retailers can carry a wide assortment of branded products, smaller format stores may stock 50-80% fewer SKUs, “or they may not carry your brand at all if you are not the category leader or fit with their shopper target,” Bourland says.

He outlined this thinking in a presentation called “The Impact of Urbanization on Retailing” at a Shopper Insights in Action conference hosted by the Institute for International Research (IIR) in Chicago.

From the manufacturer and retailer standpoint, “the clear implication is that retailers in urban areas need to serve a more diverse population,” says Pranay Agrawal, co-founder and executive vice president, client development, Fractal Analytics. “They have to be geared up for that. They need to work with a smaller number of UPCs and SKUs. So they need to find the most impactful SKUs for their particular location.” (Another Fractal Analytics executive spoke with Bourland at the conference session on urbanization.)

“Because of diversity in the urban areas, assortment planning at the individual store level becomes much more important. You may be in a Hispanic neighborhood, or you may have many different communities visiting your store, but you only have a limited amount of space,” Agrawal says. The amount of revenue that stores in urban areas got from large packs was 25% lower than stores in suburban and rural areas. The amount of revenue that they got from small packs was almost 20% higher, he reports.

For example, an urban store may carry more smaller packs of diapers than a suburban or rural store, and manufacturers might start looking for innovations that allow them to put more units into these packages, Agrawal notes. There are many reasons for this: less shelf space in the store; less storage space in the home; more lower-income shoppers who can’t afford the big packs; and customers who walk to the store rather than use a car to travel a short distance.

Additionally, from a category management standpoint, “stores in urban areas need to have a supply chain that replenishes the stores more often than the rural areas,” he adds.

Although urban stores might carry fewer brands, they still must stock value brands to serve low-income customers, Agrawal notes. For these retailers to best serve consumers in the category, “they definitely need the value brands to make sure they are not leaving a certain part of the population out of the category. Value brands are a very important driver both in rural and urban areas.”

The research defined rural stores as in counties with populations lower than 10,000. Suburban stores are located in counties with populations of 50,000 or more, with a minimum of 500 people per square mile. Urban stores are typically located in the inner city with a minimum population of 1,000 people per square mile.

The research showed that in urban areas, 99% of stores served areas with more than 10% Hispanic population compared to 56% for suburban stores and 24% for rural stores. Also, 60% of urban stores served areas with more than 10% African-American population compared to 53% for suburban stores and 28% for rural stores.

The rural stores generally served areas of older households, determined by the age of the head of household. The suburban and urban stores both served younger households.

In terms of income, the research showed that rural stores have the highest density of low-income households, while suburban stores have households spread evenly across all income ranges, and the urban stores served two groups, the very low income customers and those with high incomes.

“One-size-fits-all category management solutions will not work across the store formats in urban, rural and suburban areas,” Agrawal says. “They serve different kinds of customers. The realities of the lives of these consumers is very different, whether in terms of the kinds of homes they live in, family sizes, income levels, or ethnic preferences. Therefore, manufacturers and retailers need to take cognizance of these differences and manage the categories differently.”

If the manufacturers and retailers are able to do this successfully, they will better meet the needs of their consumers. “Therefore, they should be able to get more market share, higher revenues and higher profits,” he concludes.