convenience stores: bucking the high-street downturn

When IDG announced that the convenience sector would grow by an estimated 17.6% in the period to 2023 it seemed almost unbelievable. All around us we hear tales of retailers struggling in the current environment as big names go under and existing brands struggle to find their way. What is it about the convenience sector that makes it so attractive and how can this model be sustained?

As lifestyles have changed, retailers have often been slow to adapt. While the big out of town superstores are great for those that have time to spend over their weekly shop, the rise of the two person working household and an unemployment rate which has fallen from 8% to 4.1% over the past 8 years, more of us than ever are working. These busier lifestyles lead to increased time pressure when it comes to performing the basic household chores, hence the rapid rise in the convenience stores.

The convenience market is a clear growth engine within the grocery market, but it hasn’t been smooth sailing for all retailers who have dipped their toe in this market. The UK is currently being dominated by a few key players, with Morrisons selling their M-Local concept in 2015 there are some interesting learnings for retailers looking to introduce a convenience concept into the market.

For new entrants looking to capitalise on the rapid growth of the convenience sector it is worth taking a look at the successful strategies employed by those retailers who have really made a success of this format.

A better offering for the customer in-store

It is too simplistic to put the rapid growth in this area down to lifestyle changes alone. The winners in the sector have worked hard to improve their offering. The Co-Op, has focused on getting the basics right, with a store improvement plan to ensure stores are clean, have a good range of products when the customers need them most, plus upgrading lighting and fittings to create a modern and enticing environment.

Other winners like the Tesco Express format have added the ability to collect online shopping from their locations, and sometimes an instore post office or parcel service. A one stop shop with long hours to suit the busy professional. In the US we see the same trend continue with 365 Wholefoods providing hot fresh food with social environments for customers to stay and eat. The recent takeover by Amazon has enabled the online in-store services that customers demand.

Location, Location, Location

Offering great services and an engaging environment isn’t enough though. For convenience stores to attract enough footfall to be profitable their location must be right for the customer. For example, Sainsburys local formats are always located close to train stations, office blocks or large apartment blocks and housing estates. These locations offer a value to the customer by reducing the time they need to spend in performing the grocery run.

These store formats tap into the instant gratification their locations provide for the shopper, customers literally walk past the store front and can buy with no planning required. Something even online cannot offer. With that comes the need to get the range spot on, however. It is no good having the store in a busy location but having empty shelves during peak periods. Tesco Express has invested heavily in frequent stock replenishment throughout the day to ensure shelves are always full. Not easy in a micro store format where warehouse / stock room space is at a premium.

Promotion is King

For a customer base who will be making the majority of their shopping decisions on impulse, promotions are valuable. Impulse shoppers are open to options and suppliers are keen to maximise on this. The growing footfall in these store formats makes the promotion opportunity highly attractive. For larger grocery retailers, one of the biggest barriers to online shopping is customers believing they will miss out on valuable promotions if they do not shop in-store. By increasing promotions in a micro store format, they get two chances at the same audience.

Low Cost Operating Model

The most successful convenience stores operate within a very lean, effective operating model and develop working structures that minimises their operating costs. They do this by utilising ‘just in time’ delivery, designing shelving and planograms for full case replenishment and influence suppliers to organise packaging of essential lines to hold just over a week’s worth of sales and designing packaging to be shelf ready. The stores labour models focus on minimum staffing and have invested in more self-service checkouts to keep the cost of operation down.

Looking to the Netherlands, Albert Heijn have focused on lean operations, utilising their team in short focused 1-4 hours re-stocking shifts to maximise employee utilisation. In addition Albert Heijn provide their customers with fast and effective self-checkout solutions that require minimal human intervention such as weighing goods or employee validations for specific purchases. Who wouldn’t want to see an end to ‘unidentified object in the bagging area’ ? Their newest proof of concept being ‘tap and go’, a card that customers simply tap onto the shelf of the product they wish to buy allowing them to bi-pass the checkout completely.

Who will be the winners in Convenience?

The examples above show that there are many different ways to establish best practice the convenience market, and it will be interesting to see which retailer has the most success. It is possible that the discounters could see opportunity in this space competing against the higher average price points we see in the convenience stores run by the big four supermarkets. If the discounters apply their lean operating model, simplified ranges and self-service models to a smaller environment they could directly challenge the price point of their rivals and open up an exciting new revenue stream.

Furthermore, we are likely to see a growing number of little Waitrose stores opening across the UK in direct challenge to the M&S simply food stores. The question for both will be how to gain the attention of the time poor, cash rich customer and they will have to place a greater focus on providing a fast service with more footfall drivers such as cafes and even wine bars.

The Key to Success

Success of a convenience operation comes down to knowing the customer and adapting the standard operating model to offer the customer the best value whilst limiting unnecessary costs. Enabling this to happen requires end to end business strategy that focuses on service, availability and agility to change as your customer demands. If this is achieved, then the convenience sector is a very attractive target market to explore. It won’t be easy to achieve, but at a time when so much of retail is failing it could be too good an opportunity to miss.

This article first appeared in Retail Times on 20th July, 2018.

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