Modern grocery sector could leverage small-format stores to drive growth

Small-format stores attract consumers due to their proximity.

Not many large-format stores such as hypermarkets and supermarkets, a sector that is largely saturated, can attract traffic and are profitable, whilst small-format stores in Asian markets continue to thrive.

In a report, McKinsey said that convenience stores in Thailand, minimarkets in Malaysia, and smaller supermarkets in Vietnam are seeing growth.

For example, in Thailand small format stores account for 22% of the total spending on fast-moving consumer goods, closely following the 24% contribution of large format stores. In Urban Vietnam, 11% of FMCG spending was from small formants, slightly higher than the 10% contribution of large format stores.

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“Only a few retailers have achieved initial success with smaller formats because of difficulties in drawing consumers, adapting assortment, or calibrating sustainable unit economics,” the report read.

“These formats could continue to benefit from strong momentum in convenience across markets; shoppers are embracing them as retailers improve store networks and address the need for proximity,” it added.

McKinsey added that modern grocers can partner with traditional stores to cater to consumers’ preference for proximity and support them in digitalising their operations.