Sales per square foot are one of the most important and closely tracked KPIs (Key Performance Indicators) for any brick-and-mortar Retail Organization. It is very easy to understand, considering that occupancy expenses are at the top of all operational expenses on the P&L statement of any retail store.
“Sales per square foot is a measurement of productivity. It also gives the business an idea of whether the merchandising mix and the amount of merchandise on the floor are doing their job.” Rebekah Kondrat, the Founder of Rekon Retail
“Basically, sales per square foot helps you understand if you have the right product at the right place at the right price.” While the above conditions are mandatory for successful retailing, they are not sufficient as they completely ignore the impact of Customer Experience on the overall retail marketing strategy. There will be $0 sales per square foot without customers coming to your stores.
We looked at the 12 largest US grocery retailers based on the revenue in 2021
Walmart and Sam’s Club are easily the largest grocer in the country, as the numbers above represent only grocery sales. Revenues for selling drugs, fuel, and other non-food items were excluded from all the stores as much as possible. In the case of Amazon, I separated only revenues produced by its physical stores.
The Walmart revenue hegemony (35% of the total sales) is not that surprising given the sheer number of stores (30% of the total stores) they operate, with many located in areas with very little competition. However, the quality of marketing and operations performance becomes more visible if you compare these grocers based on average store revenue.
Costco’s Sales per Store are 3 times above the average, and we are not talking about Average retailers. They are three times better than the average sales per store of the 12 best retailers in the country. To be fair we should consider the size of these stores to fully appreciate the marketing and operational performance of these retailers since their selling floor sizes vary substantially. After all, Kroger’s average store size in 2021 was 123,750 square feet, while Aldi or Trader Joe’s average store size was below 15,000.
Even after normalizing sales numbers for the size of the stores, Costco comes out as a clear winner. This begs for a deeper investigation of what differentiates the four leaders from the rest. Given that most, if not all, of these Grocers sell the same or very similar merchandise and none of them experienced wide supply chain interruptions, I would venture to guess that marketing and specifically Customer Experience closely correlate with excellent revenue numbers.
Unfortunately, I have never personally experienced shopping in Wegman’s or H-E-B stores, but a basic Google search yields a good number of reasons Why Wegmans food markets get the love of Customers. H-E-B is also no stranger to the top spots on the Top Retailers for Customer Experience list year after year.
However, when it comes to Costco and Trader Joe's, it is very visible to anybody who shops there what makes these leaders stand apart from the rest:
Most in-store demo events at Costco stores have been performed by Club Demonstration Services or CDS for over 30 years. Originally, the company was a part of the Costco organization, but at some point, it was set up independently for financial reasons to remove the product demonstrator's employment liabilities from the corporate balance sheet. Currently, most, if not all, are independent contractors. However, not all in-store promotion events are staffed by CDS. The Vendors may choose to conduct “road show” all-day in-store promotion events staffed by their own brand ambassadors, but all in store sampling and demonstration of product events hosted in Costco stores are paid for by the vendors. Regardless of what corporate entity staff and pay for an in-store demo, they use a centralized scheduling software system managed by CDS. That system was originally developed before the separation of the CDS from the “mother ship” and is a competitive advantage empowering Costco's Word of Mouth Marketing strategy - “Come for free food - Leave with buying more than you planned”.
Well, whether it is the causation or a correlation, the customer experience focused retail marketing strategy has proven to be a success!