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The Keys to Convenience
With mounting pressures from alternative shopping channels, the convenience store industry faces a critical cross roads where challenge intersects opportunity.
by Traci Carneal
It’s one of the most popular morning talk shows in the Washington, D.C., metropolitan area--an FM radio program that appeals to the middle set of the population, ages 18 to 45 approximately. The hosts are young, male and female, and generally engage listeners in a variety of fairly clean, yet timely and somewhat mundane topics…sort like a Seinfeld episode.
On this particular day, the topic of discussion is listeners’ most embarrassing secrets. One listener calls in to share her secret. She says that everyday at lunchtime she "visits her local convenience store along with all the construction workers to get some nachos with cheese." The hosts chuckle, because they too have similar vices. One comments that when he falls off the Atkins bandwagon, he slinks into a convenience store to buy a package of Hostess cupcakes. The entire crew, including the listener, moan together at such a thought, implying that the product is "oh, so good" but "oh, so bad for you!"
This image of c-stores continues to linger, despite the efforts of innovative chains like WaWa that have done an excellent job in revamping its offerings to fit the needs of today’s consumers.
"The traditional image of the c-store needs to change if the channel is going to continue to flourish in the wake of increasing competition," according to Todd Hale, senior vice president, consumer insights, AC Nielsen, Shaumburg, IL. He thinks more c-stores should follow WaWa’s lead, especially as healthy foods become a higher priority for consumers and fast food continues to take a beating in the press.
The good news, says Hale, is that c-store growth continues to rise, along with Wal-Mart, while grocery and drug channels remain flat. Wal-Mart sales are up 15 percent this year, while c-store enjoyed five percent growth, grocery only one percent, and drug stores have seen a one percent drop in sales. So c-stores are doing something right, but more potential for growth exists if they can reinvent themselves and their product offerings, says Hale.
The Channels are Blurring
While c-stores have been known primarily for their salty snacks, candy, cigarettes, gas and beer, times are changing as convenience stores no longer hold the only key to convenience. Now superstores, clubs, drug stores, discount stores and grocery stores are giving their customers a key – and a reason to find convenience at their channel.
According to Janice Jones, director of research, FMI, Washington, D.C., the biggest trend for the grocery industry is simply the concept of convenience. While it may sound like old news, the reality is that shoppers universally are seeking convenience in every aspect of their lives – and that has a significant impact on supermarkets.
"The c-store is model is very good at getting customers in and out really fast – you can get gas, buy some basic items, and in two seconds you are out the door," Jones notes. This increased demand for convenience is leading supermarkets to provide services that can encroach upon convenience store territory. For example, many grocery chains are inserting gas pumps and mini c-stores in front of their supermarkets for consumers on the go. Others are incorporating dry cleaning services and bank tellers, and pharmacies and ATMs remain a huge draw.
FMI’s research indicates that consumers also talk about stores that don’t seem convenient, like superstores and mass merchandisers. But it’s the one-stop shopping that they find convenient, despite long check-out lines and a great deal of walking around the warehouse, which can be a disadvantage for older shoppers.
"Making one trip for many items all at once is a big plus for many consumers, especially families with children. They can get groceries, shoes and clothing, even gas, from one place," she adds.
Jones says the supermarket business is moving in two directions – the stores are trying to expand like a superstore and offer more one-stop shopping, while behaving somewhat like a convenience store (i.e., the quick stop store at the gas pump).
When FMI asked consumers if their primary supermarkets have gas, the percentage that said "yes" is quite small (18 percent), although 60 percent of this same group indicated they are using the gas pumps provided at their primary supermarket. In terms of pharmacy use, 57 percent of people say their market has one, and 29 percent are using it once a month.
Forty-two percent of consumers surveyed say their supermarkets offer in-store banking, and coffee bars are on the rise.
"What we are seeing is a blurring of channels where people get food. Is it a c-store, drug store, supermarket, superstore, discount or dollar store? Consumers don’t care what it’s called, but they want to buy where it is easiest," says Jones.
Another interesting trend is that consumers are willing to pay more for convenience.
"When the economy suffers a down turn, people tend to economize on groceries. But we also see people still willing to pay more for an item in a convenient package, like individual size portions, for example," says Jones. This behavior was similar across all types of incomes.
AC Nielsen’s Hale agrees. "C-stores won’t be able to compete on price – with WalMart’s offerings, for example. But those in a hurry will offset the trends with pricing by paying for convenience. That’s something the c-store channel can’t lose sight of. They shouldn’t fall prey to the pressure for lower prices everywhere because I think people are willing to pay for convenience," he says.
Where C-Stores Are Now
In a broad sense, the size of the c-store industry is shrinking, but it’s not all bad, says Claire Pamplin, editor in chief, Convenience Store News. Pamplin notes that a lot of merger and acquisition activity means there won’t be as many big players and that the number of stores is decreasing.
"This is one of the largest trends for operators and consumers, as well," Pamplin says. "There will be fewer stores, fewer choices among the big brands. However, a lot of this activity is about becoming more efficient. The poor performers are falling out of the picture."
Hale says it is a real time of change for c-stores, whether the issue is channel blurring or pressure from a variety of fronts. Consider all the pressures on the gasoline business from clubs and groceries, all the pressures for convenience shopping from drug stores and from dollar stores because of significant increases in store count, and then there’s the supercenters.
"Large stores with one-stop shopping are certainly going to take away some of the trips. The industry has to look for ways to make themselves new and improved. They have to evolve into something else," Hales notes.
As for offerings, Hale credits some c-store chains, such as WaWa’s, with breaking the mold and serving as a role model for others. "It’s a terrific chain in terms of their ability to create a lot of traffic both male and female, and they do a great deal of business with prepared foods and fresh produce, as well as deli products. Other chains can learn from them," Hale says.
"Let’s face it," he adds, "the drug stores and the dollar stores carrying a fair amount of snacks and beverages are going to take away from the sales that the convenience channel has traditionally captured."
Healthy and fresh foods are a growing trend, fueled by increase for Hispanic population, he adds. "I don’t frequent c-stores because I’m not in the market for salty snacks, beef jerky and beer. But if a c-store can offer fresh produce and quality prepared foods, it would make the trip worthwhile."
Hale also notes that AC Nielsen research indicates a drop-off in frequency of shopping in the convenience channel in the last few years. He says this has been caused in part by "pay at the pump" options and the fact that people don’t have to go inside the store to pay.
"I don’t think it is anything the channel can get away from, though. It is convenience they are offering their shoppers and it is necessary. I think if they improve the offerings inside their stores, they can do a better job and attract more consumers, Hale says.
Technology also plays a role in the success and future of c-stores. Pamplin says that while c-store operators are looking at such concepts as self check-out, some of the most important technologies have been general store automation including scanning.
"C-stores were among the last retailers to embrace the concept and now most of them are doing it," she says. "It increases their accuracy at check-out, they can really guard more carefully against shrink both internally and externally, and they have a better idea of what they are actually selling."
Pamplin also identifies RFID tags as a great consumer benefit. By using a speed card or an FOB (small device the consumer keeps on a key ring), consumers can speed up their purchase transaction – both inside and outside of the store. The device transmits the customer’s credit card information into the system using radio frequencies instead of card readers.
She says alternative payment forms, whether it is RFID or acceptance of debit cards or cash acceptors in some other format, are making c-stores even more convenient.
"It’s actually safer to use a speed pass, say in the middle of the night when you are getting gas. This offers convenience, safety and speed – and that’s what c-stores are all about," Pamplin continues.
Another trend is remote management through digital cameras installed in stores. Managers are actually able to see in real time from their personal computers from many locations what’s going on in a given store, says Pamplin. "Not only can they physically see what’s going on in the store, but they can see what the transactions are that day, whether they are at home, across the country, or at headquarters. It’s been quite a boon for the c-store industry because most chains are set up with a headquarters in one location and many stores scattered across a large market across the country," she says.
Now that this service is Internet based, it is much more reliable and offers better quality. Operators can do backup in terms of security of information, and the cost has gone way down. Pamplin says a lot of operators are at least testing this, and they are moving from looking at what’s going on in the store to analyzing how consumers move through the store and make purchasing decisions.
What Can C-Stores Do?
C-stores have to consider who the convenience store shopper is, and how to maintain their share, says FMI’s Jones. "If less people smoke, for example, and c-stores rely primarily on tobacco, they need to reevaluate their strategy."
Some are experimenting with services that make the shopping experience more pleasurable with on-floor food sampling and cooking classes, she notes, but this is not as important of a trend as convenience.
Hale thinks there is an opportunity for the channel to grow its customer base from primarily male and lower to middle income shoppers to more female and upscale shoppers. He offers Trader Joe’s as an example of a "large food convenience store that have driven sales with people who have lots of income. That’s an opportunity for the convenience channel. Perhaps there is some way c-stores can pull in shopping trips and sales from those folks," Hale adds.
He also suggests that foodservice prepared foods is a big opportunity for the convenience channel because the fast food channel has not been fairing as well in recent months. He says there is a focus on healthier foods, and that coupled with the negative press the fast food industry has received, is an opportunity for the convenience channel to turn that into some strength.
As for the competition, Hale notes that last year about five percent of gas sales were through big box retailers – grocery, mass merchandiser or club store. "In the next four years or so, I think that will be closer to 20 percent. Clearly, the channel that will come under the most pressure is the c-store channel. They’re going to have to do something to defend themselves.
Hale has seen a c-store in Tennessee that has one employee and is fully contained like "one big vending machine. You can buy gasoline and go into this box and buy a lot of items. Technology’s can be a lever in terms of information but I think the key is getting back to good tasting quality foods that people in a hurry can rely on. Technology may help some, but I don’t think it is as important as the channel reinventing what it wants to be."
Traci Carneal is editor in chief of Distribution Channels magazine.
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