Hypermarkets in demand overseas, but will the concept ever take off in Australia?

Posted by Daniel Palmer on 11th September 2008

Hypermarkets, which essentially combine a department store with a supermarket, have been growing in number overseas since the first store opened by French retailer Carrefour in the 1960’s, but Australia has largely been immune from the trend.

Market analysts Business Monitor International have discovered that hypermarket sector growth will be beyond the rest of the grocery market in central and Eastern Europe as consumers embrace larger stores to reduce fuel and time costs.

According to BMI, in 2006, hypermarkets represented just over a third of the grocery retail market in the leading markets of central and Eastern Europe, but growth of 125% over five years is set to see the sector expand at a greater rate than the rest of the industry (95%).

“The hypermarket segment retains considerable potential for further growth in absolute value terms as well as store numbers and penetration,” BMI said.

Hypermarkets work on a simple premise of high volume with low margins. They draw consumers in with a promise of low prices and the prospect of finding all everyday living essentials in the one store.

In Australia, however, the concept hasn’t really taken off. Coles endeavoured to set-up their own hypermarkets with the introduction of Super Kmarts in the 1980’s. The stores effectively combined a traditional Coles supermarket with a normal K-Mart outlet. The results were not overwhelmingly positive, with the concept being shelved in the 90’s and the Super Kmarts being divided to have a separate Coles and a separate Kmart.

In 2006, Coles decided to re-brand Kmart and Bi-Lo stores as Coles with 40 ‘supercentres’ to be part of the plan. This idea was abandoned following the takeover by Wesfarmers last year.

There are many Australian chains which are diversified in their product offering but no nationwide-chain would be considered a ‘hypermarket’. Is it because consumers don’t demand such options or simply because no retailer has been willing to put enough resources behind a hypermarket expansion?

Possibly both, given that retailers have been reluctant to commit to hypermarket expansion and Coles felt the concept was not working well enough to continue with it. If consumers had been enamoured with the concept then Coles would not have abandoned it and hypermarkets would be prevalent throughout Australia by now.

Many Australian consumers love shopping centres, but maybe they prefer everything they need in one area and not just one place? Maybe the prospect of having a trolley mixing fresh food with clothes and tools doesn’t appeal?

As it stands, the major retailers appear confident that the best way to appeal to consumers is to have a number of different brands to suit different shopping needs e.g. Target and Coles, Woolworths and Big-W.

It will be interesting to see if the concept is re-introduced over coming years given the overseas boom. The success of the new retail entrant Costco (a warehouse, which is probably closer a hypermarket than any chain in Australia) will provide an indication to the future Australian retail landscape and dictate whether the current supermarket and department store separation will continue.