Convenient Convenience Drives Convergence

The convenience store sector continues to outperform other retail sectors, in large part driven by ever-increasing sales of fresh prepared food. In fact, fresh prepared food sales are the root cause of the undercurrents of disruption changing the price, value and service equilibrium within the retail food sector today.

Companies such as Wawa Inc., Sheetz Inc., Rutter’s Farm Stores, Casey’s General Stores Inc. and 7-Eleven Inc. are all expanding year-over-year sales while building new units. Differentiation with quality ready-to-eat and heat-and-eat fresh prepared food is one way to created marketing buzz and customer trial. However, that model is changing and changing fast, driven by evolving demographics, technology and virtual convenient concepts.

Five years ago, many leading convenience store operators were worried about other c-stores stealing their ideas. Then, they began to think they should only worry about the day when they stop stealing ideas. Well, that day may have arrived. The current convenience store business model is under attack.

Even after seven successful years of seeing convenience stores’ retail fresh food sales leading the food industry in growth, c-store operators cannot rest on their laurels. I’ve seen how “footprint malaise” can be a leading contributor to consumer discontent and migration to other channels. Although fresh food continues to be the driver of customer frequency, retailers have seen gasoline volume tapering off with improved gas efficiencies taking a toll.

YOUTH-TARGETED C-STORES

A recent study found that Americans aged 16 to 24 who have driver’s licenses fell to 67 percent in 2011, the lowest level in roughly a half-century. This same segment of consumers would rather have a smartphone than a driver’s license.

The consumer is dynamic, not static; business models must be as well. Are you building or remodeling stores for yesterday’s customers or tomorrow’s?

While smartphones and technology are driving disruption in seemingly every sector of the economy, new technology and startups led by 20-something CEOs are now taking aim at the convenience store sector and all fresh-food retailers. Burger King’s purchase/merger with Tim Horton’s is just one example of a legacy food retailer trying to mitigate customer migration with daypart expansion, but that may not be enough.

WHO'S COMPETING IN CONVENIENT CONVENIENCE?

In an omnichannel/cross-channel retail world, simply doing what you have always done and doing it the same way does not work.

Back in 2011, when Scott Stanford and Shervin Pishevar led separate investments in Uber’s $37-million Series B round, fellow investors and friends scoffed. “Why are you guys investing in a limo company?” the naysayers asked. Today, Uber is operating in 128 cities and valued at $18 billion.

Today, Uber also is offering a free delivery service called Uber Corner Store as a means to garner more customers. Yes, the company is serving young customers that don’t drive, aging customers who are too old to drive and lower-income customers who can’t afford a car full-time to drive. Since Uber’s store is a virtual location, the return on investment is much less than a brick-and-mortar store.

Stanford and Pishevar did not stop there, though. They formed a venture capital firm called Sherpa Ventures. One of their first big bets was a $28-million Series B investment in a San Francisco-based food delivery startup called Munchery, which makes meals and delivers them within one hour.

Munchery and Uber are putting the “convenient” in convenience. Now, you may be thinking that technology-based food companies will not affect your business. Tell that to Waldon Books, Barnes & Noble, Crown Books and maybe your favorite local bookstore.

Are you building a convenient brand beyond your four walls?

TECHNOLOGY: ONCE A FRIEND, NOW A FOE

Sherpa Ventures co-founder Stanford said, “When you introduce something like Uber or Munchery, you change the paradigm with not only how that service or product is consumed, but how it is provided … If you can change the underlying economics of that delivery platform or that value chain, it puts you in a really interesting position from a financial perspective.”

When Red Lobster opens a new restaurant these days, it does it very much the same way it did 46 years ago. Sure, it will have an updated menu, décor and messaging, but the business model has not been changed. Red Lobster and maybe your company’s business model might just look more like yesterday’s business model than tomorrow’s business model.

There is a growing trend of companies that, thanks to smartphone technology, are providing efficient and innovative on-demand services. They can make your business look outdated. Consumer expectation has changed as a result of greater connectivity. From brick-and-mortar locations, consumers are fast looking to “point, click and eat” solutions for immediate consumption — no gas required.

THE MIGRATION OF LEGACY GROCERY STORES

Legacy grocery stores are migrating into the "convenient convenience" space as well.

Sharon Price, grab-and-go food guru for the Fresh & Easy Neighborhood Market chain (formerly owned by Tesco plc), recently said: “We set out to develop more breakfast options that are delicious but not overloaded with calories, perfect for the customer looking for healthier options on the go.”

These grab-and-go breakfast items are priced to compete with c-stores and quick-service restaurants. They will complement the lunch and dinner fresh-prepared, ready-to-eat and heat-and-eat offerings.

Whole Foods, meanwhile, not only offers fresh prepared food for breakfast, lunch and dinner, but it also has entered the catering and holiday meal business, as well creating a whole concept around family food and fun that continues to drive sales and bottom-line profits.

FROM HANDHELD FOOD TO HANDHELD FOOD ORDERING

Every retail food sector has noticed a discontinuity in consumer food shopping behavior, and all are fighting for share of stomach. Contributing to this displacement is technology and demographics. Where once the family dinner was the bastion of American household, today 32 percent of dinner occasions are eaten alone.

Are you trapped doing what you have always done and doing it the same way? How long before virtual location startups garner 5 percent, 10 percent or even 20 percent of your market share?