The city is the new battleground for food retailers. This playing field is constantly expanding due to population growth and the increasing number of workers, students, and tourists in urban areas. These consumers are a diverse group with different consumption patterns compared to traditional families who do their grocery shopping weekly.
Cities are characterized by a significant gap between wealthy and low-income consumers, a broad mix of backgrounds, and a growing number of single-person households and elderly residents. Here, convenience-driven consumers dominate, causing traditional supermarkets to lose market share. At the same time, out-of-home providers such as HelloFresh, Flink, TakeAway, and local independent entrepreneurs strive to strengthen their positions. The competition is not standing still.
Savvy retailers are responding to this trend with convenience-focused store concepts. For example, AH To Go recently opened its fourth location at Amsterdam Central Station. These concepts cater to consumers who decide what to eat at the last minute, have little time to cook, and prioritize convenience. City stores are transforming into social meeting places where customers can shop, eat, and even find a date—the experience is everything. Self-service and fast checkout methods are the norm, and the fresh product assortment changes continuously based on current demand. Store location is crucial; those who fail to adapt lose market share to competitors.
Although convenience concepts often lead to high-margin shopping baskets, they also present significant logistical challenges. Supplying city stores is complex, highly volatile, and demands flexibility. Multiple just-in-time deliveries per day create peaks in transportation demand, both weekly and daily. City stores receive smaller quantities per SKU, resulting in more intensive warehouse and store management. Collaboration with an ever-changing network of local fresh suppliers ensures the proper product selection in stores. Execution errors are immediately visible to customers. Deliveries must be flawless: on time, in full, no error (OTIFNE).
Traditionally, store delivery costs range from 1 to 2 percent of revenue, but for city stores, this can rise to 10 to 15 percent. That’s a serious challenge when profit margins are only 25 to 30 percent. Will this battleground become a bloodbath? For comparison, home delivery costs for online orders can quickly reach 25 percent or more. The new sales channels present significant supply chain challenges.
In addition to a tailored assortment, highly efficient supply chain management is essential. This is a matter of cost and necessity due to stricter ‘low-traffic’ urban regulations for city logistics. How do you balance service and cost? A crucial step is consolidating goods flows through regional hubs, combined with zero-emission transport. While regular supermarkets can manage their transport, this is often not an option for city stores. Collaboration with specialized transport operators, the ability to scale up and down, and real-time dynamic planning of the ‘last mile’ and end-to-end supply chain management are essential for an efficient supply chain to city stores.
Walther Ploos van Amstel.