A recent report published by Canvas8, a global strategic insights practice with expertise in cultural and behavioural trends, says that Australia’s grocery retail landscape is undergoing a significant transformation, marked by the emergence of boutique grocery stores in urban centres across the country.

The report, ‘Behind the success of boutique grocery stores in Australia’, was authored by Mariam Gabaji and involved interviews with consumer money-saving expert Joel Gibson and consumer behaviour researcher Nitika Garg. 

The report concluded that this trend reflects changing consumer preferences and competitive dynamics within the industry, prompting major supermarket chains to adapt and innovate. 

In recent years, major players such as Woolworths, Coles, and Aldi have launched ‘Metro’ or local iterations of their stores, catering to urban dwellers seeking convenience and tailored product offerings. This shift raises questions about whether consumer behavior is driving the trend or if it's a strategic move by supermarket giants to reshape the grocery shopping experience. 

Aldi, for instance, recognized the demand for convenience among city workers and responded by opening boutique versions of its stores, offering a curated selection of products tailored to urban lifestyles. However, with boutique stores often carrying higher price tags, there is a need to identify the target audience effectively, especially considering that grocery bills are a significant source of financial stress for many Australians.

The Australian Competition and Consumer Commission (ACCC) is closely monitoring Coles and Woolworths for recent price hikes, adding further intrigue to the rise of boutique grocery stores. These stores aim to create an experience reminiscent of a farmer’s market, featuring upscale products and pre-prepared foods to cater to evolving consumer preferences.

The trend towards smaller-format stores is driven by factors such as increased demand for convenience, but convenience isn’t the only factor. “Because land prices are going up, especially in urban centres, supermarkets have an opportunity to maximise their profit by making the store smaller and limiting the collection,” Nitika Garg, a consumer behaviour researcher at the University of New South Wales, explains. While convenience is a key driver, other factors such as quality, pricing, and location also play a significant role in shaping consumer preferences.

Delivery is increasingly becoming a focus for grocery retailers, with online grocery revenue projected to reach $9.1 billion by 2023. Supermarkets are partnering with delivery platforms like DoorDash to offer on-demand delivery services, catering to consumers' growing demand for convenience and safety.

“Transparency and communication with consumers are critical for grocery retailers, especially amid concerns about pricing and market dominance. Brands need to engage directly with consumers to address their concerns and build trust, ensuring that they understand the factors influencing pricing decisions,” says the report.

Nick Morris, UK-based founder and Managing Director of Canvas8, said: “Looking ahead, boutique grocery stores are expected to continue gaining traction, particularly in high-traffic urban areas where land size is limited. Supermarkets will need to balance convenience, quality, and pricing to meet the evolving needs of consumers and maintain their competitive edge in the market.”

It will be interesting to see if this trend will infold in India, where one can already see shifting retail dynamics in the FMCG space  with the entry of Quick Commerce players and the shrinking shelf space of leading labels. A boutique  supermarket might usher in greater need for experiential and design elements in the store space.