What if I was to say, it's not the number but, the rather the makeup of the number that is the problem. Let me explain.
In this article, I’m only going to talk about the “big dogs” of the Australian Grocery Industry as they supposedly represent the pinnacle of competitive capability with bigger stores, larger range, competitive prices and best locations. At the end of 2018, Australia had 2,324 supermarkets belonging to Woolworths, Coles, Aldi, Costco as well as seven proposed sites for the soon to launch Kaufland group. I propose that these stores of these groups fit the “big dog” title. One issue that becomes apparent is how do you measure, “too many”. Australia has a population of 23.4Million, one store per 10,000 doesn’t sound too many? Or, how about, Australia’s population is dispersed amongst 2,460 regions referred to by the Australian Bureau of Statistics (ABS) as a Statistical Area Level 2 (SA2) which are approximations of a suburb. Again, applying simple maths, one-ish store per SA2 doesn’t sound bad. Ultimately, it’s the market the determines when too many are too many but, let's see if we can use some insights to see if we are near the precipice or past it (so expect store closures and, or group failure).
If you view this question from the markets (consumers) perspective where do you draw the line? The obvious answer to the question is it will depend on how many stores are near you and what choices are available. So, to answer the question we need to establish;
What is near? Or, paraphrasing what is a reasonable distance for you to consider a store to be in your market area.
How many stores are in this reasonable distance? And;
What choices have I within the number that are in a reasonable range?
Consequently, I will be placing some emphasis on defining what a reasonable distance is. I do this because I’m of the opinion that it is now the major determinant for consumer preference for one store over another. Marketers will argue that range and price are higher values for a consumer and I believe these to be important but, they are factors that in a competitive market environment are copied or neutralised as an advantage. If these assets are neutralised, location or proximity to a consumer market becomes the primary attribute for competitive advantage. And, to add further clarity, if a number of stores fall within the range of a reasonable distance, then I believe, perceptions of Range, Price and aesthetics become again, determinants for consumer choice.
So, how do we determine what a consumer considers as a reasonable distance? Ordinarily, you would need some research-based insights here but, I’m going to suggest (because I know the data) that store distances to population areas probably exceed consumer expectations anyway. Let me explain, If I measure the straight line distance for every SA2 (2,460 of them) to its nearest supermarket, the average distance is 14.2Km.
However, for the same data set the median distance is only 1.4Km… meaning there are large outliers and the prize for the longest distance to the closest supermarket is 2,420km which goes to the Cocos (Keeling) Islands to Woolworths at Carnarvon.
Further, the ABS categorise SA2’s into GCCSA’s (Greater Capital City Statistical Areas) or what I will refer to as urban areas, and there are 1,309 Urban SA2’s which account for 66% of the population. Surprisingly, the average distance to the closest supermarket for these SA2’s is 1.9Km.
Furthermore, and for the sake of argument, given 1.9Km is the average in the urban environment and there are other population centres outside of this environment, I’m going to suggest 2Km as the benchmark a for the reasonable distance test. I know it may appear stringent but, figure 1 indicates that despite this stringency, a very high proportion of the supermarket groups stores fall within this distance of an SA2.
Figure 1 shows the number and proportion of stores that are in a 2km radius of an SA2 by the supermarket group.
Figure 1 indicates that supermarket groups prefer to site their stores as close as possible to population centres but, are these stores widely dispersed or concentrated in areas
Figure 2 shows the number of SA2’s categorised by the number of stores in a reasonable distance, and yes, you are reading correctly, some suburbs have over ten stores in a 2Km range of the SA2.
While Figure 3 includes the population by the number of stores within a 2km radius.
The points to note here are;
40% of the population have 0 or 1 store in a reasonable distance. This doesn’t mean there aren’t supermarket options but, the distance may be greater than 2km. I would suggest that these areas would not be saying supermarkets overrun them.
48% of the population have 2 – 4 stores in a reasonable distance. Again I don’t believe this to be too many but, let me caveat the statement with the point it depends on what choices are available. And;
While 11% have 5 or more supermarkets within 2km of the SA2 and, to me not only does that seem to be a lot but, I would also be questioning what choices are available.
Consequently, we are flagging that an issue may exist for 59% of the population or 1049 SA2’s but, subject to a further qualification of what choices are available. So, Let’s do a deep dive on this group to see if they are rich for choice or otherwise.
As an example of how choice will be defined let’s assume I’m in an SA2 that has three stores in a reasonable distance. For me, the ideal would be to have a Woolworths, a Coles and an Aldi Store. As the number of stores in reasonable distance categories is wide-ranging (2-21) the definition for ideal will have to adjust to allow for different combinations of store numbers. Therefore, I’ll propose a definition for ideal choice to be where the percentage of a group’s stores does not exceed 40% of the total.
However, as Woolworths has the largest store numbers, it’s no surprise that they tend to dominate more SA2s than other groups. However, the following figures raise some doubt about it being a dispersion of larger store numbers factor. Rather, it appears that Woolworths tends to use store numbers to dominate areas and although the same can be said of Coles and Aldi, the latter have a higher proportion of their stores as single entities dispersed amongst the SA2’s.
Does that constitute too many supermarkets?
My conclusion is that for most Australians, the issue is not the number of supermarkets as 60% have fewer than two supermarkets less than the threshold distance. Although, in these cases, there may be an argument that the threshold distance should be increased. Rather, for those that have more than two supermarkets, not only can the number be excessive but choices are unlikely to be ideal and this probably is a topic for another day as the situation is not good for consumers and market competition is sub-optimal.
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