Three new small-form Coles stores will open throughout Melbourne this year, as the supermarket giant looks to expand into the convenience sector.
The stores, branded as ‘Big Yum at Little Coles’, will put Coles in direct competition with 7-Eleven, with the supermarket giant set to offer coffees at 20c cheaper than 7-Eleven’s popular $1 cups and its own “mad scientist” Slurpee alternative, called the “Guzzle Bomb”, according to The Australian.
The new stores are rebranded Coles Express pilot stores, and are located in the suburbs of Kew, South Yarra, and Windsor. The convenience and prepared meals sector is estimated to be worth $5 billion, and Coles is hoping the move will secure it a larger slice of the market.
Coles has stated it aims to offer the products in Big Yum stores at supermarket-level pricing, but retail expert Gary Mortimer, an associate professor at the Queensland University of Technology, believes this will be hard to achieve.
“Running a supermarket and running a convenience store are very different, it’s hard to hold supermarket style prices due to the higher wages for convenience store workers,” Mortimer told SmartCompany.
“The profit margins are quite small, so I believe they will have convenience-like pricing.”
Healthier food options will be the focus of the Big Yum stores, with the product range including fruit, wraps, sushi, and sandwiches. A wider range of bakery items will also be included, along with non-food household products.
Simon McDowell, director of Coles Express, told The Australian the retailer will be “closely watching the performance of these proof of concept sites and will look to incorporate successful elements of the format elsewhere in the store network’.’
“We’re seeing more big supermarkets move into the convenience sector,” Mortimer says.
“The big players are becoming more aware of high-density living and the continually growing urban fringe in larger cities. Land and space for larger supermarkets is harder to find, so smaller format stores get into that marketplace.”
Mortimer says the higher volume of people in inner-city areas means apartment sizes are shrinking, leaving residents with less space for a pantry. This means shoppers are required to buy more often, leading to the rise of small format stores.
“The new Coles brand is competing specifically against 7-Eleven, they’ll have the same range of coffee, donuts, chocolate bars and sausage rolls,” he says.
Woolworths recently announced four of its smaller Metro supermarkets are planned for closure, which leads Mortimer to believe Coles will not replicate its rival’s “small supermarket” strategy.
“Convenience is a good strategy to move into, but it’s hard to run, which has been shown internationally,” Mortimer says.
“Tesco recently announced it is closing 30 of its smaller stores, and Wal-Mart has walked away from the sector altogether.”
Mortimer believes the Big Yum style of stores won’t affect the ebb and flow of the supermarket duopoly significantly, saying it’s just “another dimension of competition.”
However, inner-city convenience store owners may need to watch out.
“A little mum and dad store in the suburbs won’t see much of a change, but independent traders in the city might start to feel the heat from Woolies and Coles,” he says.
Research from industry research group IBISWorld shows the convenience sector is set to experience significant competition from large retailers such as Coles and Woolworths, with revenue predicted to fall 2% annually over the next five years.
SmartCompany contacted Coles but did not receive a response prior to publication.
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