Following the opening of its first micro store in Solihull, Co-op Food chief executive Matt Hood speaks to Retail Week about the international inspiration behind the concept, why now is the right time to launch, and how these stores could reshape Co-op’s approach to convenience retail
Can you tell us about the inspiration behind Co-op’s new micro store format?
“The inspiration came from a trip I took to Poland last October to visit Żabka. A previous colleague had spoken about doing business with them and was really impressed with their journey. They’ve gone from zero to 11,000 shops in no time at all, and it’s predominantly franchise-based. I wanted to see how they approached convenience retail.
“What struck me was how different their model was to how we classify convenience in the UK. We’ve taught UK consumers that convenience stores should be in that sweet spot of 2,500 to 3,500 sq ft, and we’ve completely ignored anything smaller than 1,000 sq ft. In Poland, all their shops were sub-1,000 sq ft, yet they held the market-leading position and still managed to class themselves as the leading convenience retailer.
“Despite the tight space, they had a whole quick service restaurant operation and they sold more chips than McDonald’s. They championed immediate hot food consumption, and because they’d only been growing since the early 2000s with this focus on hot food, their average customer was about 28. Compare that to us – our average customer is still in their late 40s to 50s.
“A couple of months later I was in Shanghai and Tokyo, and the model was exactly the same. Again, 600 to 1,000 sq ft, all focused on hot food – not necessarily hot dogs, but fried chicken was the champion there. That’s what drove people in, and then they picked up other items while they were there. It really reinforced my desire to try this approach.”
What does your data tell you about this opportunity?
“Our insight and data is increasingly showing the blurring of lines between convenience shopping and quick service restaurants. We’re 13-14% of the food-to-go market in the UK through sandwiches, yet the only hot serve option we provide is in-store bakery or hot food cabinets, which doesn’t really bring excitement to the offering.”
The new proposition has over-the-counter service. Will you apply learnings from this to your wider store network, particularly the hot food counters?
“Definitely. We’re already planning to retrofit a number of shops as well. We’re aiming for around 10 locations initially – new locations on high streets. But we’ve also been doing a lot of work on what the future of transient Co-op stores should look like – central London, Manchester, Leeds, Glasgow, etc.
“We’ll take this model and retrofit it into some of our London shops because they’re slightly bigger – just over 1,000 sq ft – but the mission is very much the same. Take Holborn, just around from the tube station – 60-70% of its sales are food-to-go, yet we’re still setting it up as a convenience store rather than optimising for what customers actually want.”
Why now? Why is this a good time to launch this concept?
“We’re doing a big piece of work called ‘Convenience 2035’, looking at where convenience shopping is going over the next 10 years. There are headwinds around traditional convenience missions. We don’t know what the cigarettes market will look like in 10 years – as a father, I hope it goes one way, but as a retailer it’s a challenge because it’s such a big part of our business.
“We don’t know what will happen to vaping, or to the newsagent mission, as more people consume news on phones and tablets rather than physical newspapers. We need to think about what new missions look like as traditional convenience missions change.
“As the retailer with the biggest reach in the most communities, with access to almost the most transactions, we want to identify areas where we can make life more convenient for people. Hot food as a serve-over proposition is incremental to what we do – it’s new, but we’ve got the footfall to make it work.”
How is consumer behaviour around food changing?
“We have to consider this. The IGD is launching a new report looking at ‘share of stomach’ rather than just share of where people shop, because our competitors include Greggs and others as much as Tesco Express or Sainsbury’s Local – we’re competing for your lunchtime mission.
“Increasingly, the likes of Greggs are trying to do more in the evening meal space, which traditionally you’d have come to a convenience store for. What the micro concept does is piggyback off us being the biggest quick commerce player in the market, and it will enable us to serve finished meal solutions to people.”
In terms of locations, are you looking at transport hubs and train stations?
“That’s something we’d want to get into, though it becomes more challenging contractually. The immediate aim is to find busy high streets and not be scared to go into them. Our Solihull site has McDonald’s on one side, Greggs across the road, Pret next to it, Gail’s just down the road – it has everyone around it. That’s what we to have, because we want to test it.
“The fundamental aspect is that this has to be perceived as a completely different mission. You cannot walk into one of these micro stores and get your groceries. This is for a different mission entirely, and we’re being really clear with consumers about that through both physical design and even how the tab looks on quick commerce.”
Do you see your ability to sell alcohol in these locations as a point of difference compared to competitors?
“I didn’t set out with it being a USP – we have licences as a convenience retailer, and the Żabka models all sell alcohol too. But having walked around Solihull last week, you realise someone could order hot pizza, a bottle of rosé, and a tub of ice cream, and have it delivered in 15 minutes. It’s all-encompassing, serving breakfast, lunch, and dinner missions.”
How many of these stores do you think there’s capacity for in the UK?
“I’d like to get to 300-400 of these – that’s my long-term ambition, though my team will want to be more cautious! The key point is that these don’t all have to be brand new acquisitions. They can be repurposing of stores we have that aren’t maximising their potential, particularly in city centres.”
“The ultimate aim is to get to a place where we can take properties from 500 sq ft to 25,000 sq ft, and have a version of our proposition that fits all of them”
Does Greggs’ expansion with thousands of stores temper your ambitions?
“It’s such early days that I don’t know what the ceiling looks like, and it would be wrong to set it too low. Greggs has done a phenomenal job filling that space on the high streets over the last 10 years. You could argue that if there had been a Żabka or Japanese model in the UK, they might not have grown as fast. They’ve done an incredible job mainstreaming their offering, and it shows there’s a market for what we’re doing.”
How do you compare price-wise to the likes of Greggs?
“We’re more than competitive versus anybody else this model faces, because we have to be. While it’s a completely different format, we have to be mindful of what it does to our brand, so we have to be careful with price points.”
Will you be offering member prices?
“Yes, there are member deals across the store, including over-the-counter items, because it’s another way of bringing members in.”
What’s the feedback so far?
“Watching customers at Solihull last week, the number of younger customers coming in and their comments were exactly what I wanted to hear – how different it was, how cool it was. This piggybacks off everything we’ve done with festivals and Co-op Live, which has helped us significantly reduce the average age of the Co-op customer – something we’ve been trying to do for 10 years.”
Is there any risk this move will distract from your key focus on grocery?
“No, I don’t think so. A lot of it is learnings we want to take back into our main estate anyway. We’ve set up people specifically working on micro, and we have people focused on strategic change within our operations.
“The biggest challenge has been for property, because it’s not something they’ve been used to purchasing. The ultimate aim is to get to a place where we can take properties from 500 sq ft to 25,000 sq ft, and have a version of our proposition that fits all of them.
“This includes new stores, retrofitting existing sites, and potentially implants of a micro store format within our larger stores – so you’d still have the rest of the store plus that served-over element added to it. Any learnings we have will help us better serve customers in our mainstream estate as well.”
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