C-Store Retailing Goes Through Stages Around The Globe

1/10/2011

Execs from Sheetz, Rutter's and other top chains discuss global trends and winning strategies at insight/NACS conference

Convenience store retailers around the world face many of the same issues involving changing shopping behavior, government regulation and technology, but companies in each country are just operating at different stages of their life cycle.

That was a key message supplied by NACS President and CEO Hank Armour at a question and answer session with Insight Managing Director Dan Munford during the Insight NACS Future of International Convenience 2010 conference held in London last year.

As an example of the different life cycles, Armour pointed out that while self-checkout is further advanced in the United Kingdom and Europe than it is in the United States, U.S. retailers are much further down the road with pay-at-the-pump technology than their European counterparts.

The Future of Convenience 2010 conference focused on global consumer trends and the winning strategies of several best-in-class retailers from around the world.

Debbie Robinson, former director of marketing for the U.K.'s Cooperative Group and a pioneer in "responsible" retailing, provided opening comments, noting retailers around the global were operating against the backdrop of global population growth, climate change, growing affluence of the BRIC nations (i.e., Brazil, Russia, India, China), and the increased multi-ethnicities and aging populations in markets around the world.

"With the massive increase in population, growth isn't the problem. It's how you sustain that growth," said Robinson.

Armour went on to discuss what he called a "bifurcation" of retail shopping experiences between consumers demand for large one-stop-shop hypermarkets and supercenters and smaller, quality shopping experiences.

"I think convenience retailing is the most personable type," said Armour, who was a retailer for many years and is a member of the Convenience Store News Hall of Fame. "To be successful in this business you have to like people — we can build small store formats, but the magic is in how you run them."

The CEO of NACS also spoke about the importance of advocacy and getting out early in front of key issues, such as tobacco bans and restrictions.

"It's amazing that people wait for it to happen before doing something about it," he said.

Armour also praised retailers for being able to operate successfully despite government regulations, pointing to two U.S. retailers — Sheetz and Rutter's — for being able to operate profitably in markets where they cannot sell beer — a c-store staple in many other markets of the U.S.

"Whatever the regulations, customers expect us to deliver a convenient shopping mission," he said.

SHEETZ & RUTTER'S

The CEOs of both Sheetz, the Altoona, Pa.-based c-store chain, and Rutter's, based in York, Pa., were on hand to discuss their company's success secrets.

In a sit-down with Munford, Stan Sheetz talked about how he's grown up in the business. "My father started the company before I was born," said Sheetz. "I look forward to going to work every day and meeting great people. If you don't enjoy people, you're in the wrong industry. This industry is all about people — customers and employees."

The first secret to success, according to Sheetz, is to pay appropriate salaries to attract the best workers. "We pay above market wages," said the executive. "But it doesn't stop there. That just gets them in the door. Once they are here, we have to provide them with the culture. Success lies in providing career opportunities to people."

Sheetz said that 80 percent of his company's store managers have been promoted from store level employee. "The real point of differentiation is the people you have running your business," he emphasized.

Sheetz also spoke about the role fuel has played in the retailer's success. "We sell over $1 billion gallons of fuel a year. We use it as a draw to get people on our property," he said. Sheetz sells unbranded fuel and buys direct from refiners, does its own blending at terminals and controls the delivery right to the stores, where many of its stations have 20 pumps in the forecourt.

Serving "the road warrior" is the retailer's goal, said Sheetz. "We want to provide that on-the-go customer with the ability to fill his tank, fill his tummy and empty his bladder," said the executive, emphasizing the critical and important role that clean restrooms play in attracting the road warrior.

Above left, Andrew Thornton, owner of Budgens in London, shows delegates the store's rooftop organic garden. Produce from the garden are used in sandwiches and salads sold in the store.

Sheetz acknowledged that technology will also play a big role in the industry's future. "Technology is the great enabler," he said. "By increasing efficiencies, it allows you to transfer time to more productive, customer-facing uses."

Scott Hartman, CEO and president of Rutter's Farm Stores, picked up on the technology theme and described how Rutter's was reaching customers with new technologies.

Hartman said 55 Pennsylvania-based stores operate in one of the most competitive convenience markets in the world. "Four of the top six convenience stores in sales per store are located in Pennsylvania," said Hartman, listing Rutter's among Sheetz, Wawa and Giant Eagle as among the top industry performers.

Rutter's has been an early adopter of new technology in the industry and was the second convenience chain in the U.S. to launch a Web site, claimed Hartman.

Like Sheetz, Rutter's utilizes touch-screen ordering for foodservice. "The customers that most love it are the younger customers — they trust technology more than people to get the order right," said Hartman.

Rutter's loyalty rewards program, launched a year ago, now has 200,000 active card users and 1,000 customers have signed up to receive special offers, e-mails and texts from the retailer.

Mobile phone apps are the retailer's current focus. Rutter's has been a first mover in convenience, teaming up with GasBuddy, a Canadian company, which sends information on local gas prices to customers' mobile phones.

The Rutter's apps are now on three platforms: Blackberry, iPhone and Android and enable the retailer to attract shoppers to its stores with offers and challenge competitors on prices.

According to Hartman, the apps also offer details of store opening hours and services, sign up features for promotions and deals, menu lists, a membership card on the phone, feedback functions and digital couponing.

Rutter's is also adding a games feature with a 'spin to win' format featuring sponsors logos and digital coupons as prizes.

Hartman said consumer facing technologies were a journey not a destination and he urged delegates to enjoy and embrace them.

INTERNATIONAL RETAILERS

Joe Barrett, director of the Irish c-store chain Applegreen, spoke about the chain's focus on continuous improvement. A night earlier, Applegreen was named the 2010 International Convenience Retailer of the Year by a panel of international judges.

"We build on mistakes, trying to improve each store as we go," said Barrett.

Applegreen was founded in Ireland in 2004 and entered the U.K. market in 2008, where it now has 13 stores. Barrett noted the company's biggest strategic moves took place in the middle of a financial crisis in Ireland. One of those key strategic moves was opening a distribution warehouse for frozen, chilled and ambient food.

"It's difficult to be seen to be green but we have significantly reduced the number of trucks delivering to sites," said Barrett, adding that Applegreen proudly promotes its own label products on the side of its trucks.

"Private label is really important to us," he said. Applegreen retails milk and water at EUR1 per litre and offers two for EUR3 on other lines such as cooked meats.

Savings have also been secured by outsourcing the company's accounts function, reducing the wage bill and reinvesting it in the management team to analyze data and grow the business.

The big news in the U.K. retail industry was the expansion of upscale grocer Waitrose into the convenience market. In its large c-store prototype, Waitrose is focusing on fresh foods, which accounts for 70 percent of sales. In the smaller prototype, the focus is on what the retailer calls "healthy options."

Kate Smith-Bingham, head of offer development at Waitrose, told the audience the grocer's push into convenience was designed to reach customers to which it previously had little access through its larger supermarkets.She estimated that market as worth £31m in annual sales and growing. She also noted Waitrose is late to the party, following other U.K. grocers like Tesco and Sainbury's into the convenience arena.

The first large Waitrose convenience store opened in December 2008. It's about 6,000 square feet, with two-thirds of the space devoted to fresh food, including serving counters for meat and fish, cheese and deli.

Waitrose opened its first smaller convenience store in Cambridge last June. At just 3,000 square feet, it offers fresh, healthy meals, but no food counters.

Smith-Bingham said Waitrose will continue testing the convenience market and has plans for more stores in 2011.

The retail director for Ireland's leading forecourt retailer, Topaz, spoke about the company's use of price optimization technology to improve sales and profits at the pump.

"It's a mathematical equation," said Frank Gleeson of Topaz. We know what's going to happen when prices change. We can change prices more quickly, the information is quicker and with historical data we can optimize sales and profits." Topaz has been working on price optimization with KSS Fuels since 2009.

STORE OF THE FUTURE

When it comes to the c-store of the future, the president of international design firm, CBX, encouraged retailers to get out of their comfort zones.

"Think big," said Joe Bona, as he presented a concept for a future c-store based on an airport. The futuristic concept provides five zones offering fuel, convenience, amenities, dining and vehicle-related services.

In the fuel zone, the store could sell replaceable cartridges to power cars, an electric charger for electric cars and a variety of different fuels.

The convenience zone featured online ordering and pick-up service, and even a pharmacy department as Bona pointed out that drug stores like Duane Reade were adding food and competing with convenience stores more aggressively.

The amenities zone could include a remote office for customers to use, a spa and gym facilities, as well as pet stay areas.

The dining zone featured "chef pods" where customers could assemble their own ingredients, but do not heat or cook products. "You could partner with a celebrity chef, like Jaime Oliver, to give the store's food offering more credibility," said Bona.

The vehicle zone includes auto diagnostics, a green car wash and other services.

WORLDWIDE REGULATION

"Regulation will be the next big thing to hit you hard," said Mark Wohltmann at USP Market Intelligence, a German research firm acquired by Nielsen Co. in early 2010.

Without prejudging whether the regulations were good or bad, Wohltmann listed the core categories where regulatory activity would increase for convenience stores: tobacco, sweets, fizzy drinks and foodservice.

Wohltmann urged retailers to research and evaluate the expected impact of new regulations, validate the findings, organize and work with partners and take action ahead of competitors. "Prepare today, the regulations will come," he warned.

Touring London's C-Store Scene

The Future of Convenience and Petroleum Retailing conference, sponsored by Insight and NACS, included tours of innovative small format stores in Ireland, the United Kingdom and Paris, France. Doing good and tasting good seemed to be the theme of the tours as most of the stores visited were leading examples of serving local community needs and offering the freshest available product.

Convenience Store News tagged along on the tour to c-stores at the St. Pancras railroad station in London and stores in other parts of the city.

At the St. Pancras station, tour-goers were treated to a look at two Marks & Spenser Simply Food stores — one a small c-store and the other a larger store that included a department for M&S branded apparel, general merchandise and gift items.

Also at the station, delegates visited Sourced Market, an independent c-store that aims to replicate the ambience and food selection of an open-air market.

In the north London area called Maide Vale, the tour visited a Tesco Express allied with an Esso fuel forecourt. This store, in an upper income area of the city, sells more fuel and food than any other Tesco Express alliance store. More like a small grocery store than a c-store, this Tesco Express has a relatively high average ticket of 5.7 pounds.

Then, the tour moved on to Crouch End, described by some as the most competitive food retailing area of the U.K. Within a few blocks, there are numerous food retailers including Tesco Express, M&S Simply Food, Waitrose's c-store concept and Budgens, among others.

The Waitrose store represents the relatively new c-store division of the U.K.'s sixth larger grocer. Like its supermarket parent, Waitrose's c-store gets high marks from customers for its fresh food and modern look, with low fixtures and an emphasis on its front-of-the-store serviced food departments. The store does 190,000 to 200,000 pounds in sales per week and its average ticket is an eye-opening 10.60 pounds.

Budgens is located just a few doors away from the Waitrose. It is a franchise owned by Andrew Thornton. This store illustrated how an independent with clarity of vision can differentiate itself and compete against the chains. Thornton told the group he focuses on three things: first, locally sourced and specialty food; second, community; and third, the environment and sustainability.

Thornton's Budgens features what he calls the world's first store with a roof top garden that provides vegetables for sale at the store.

"It's the most local source you can get," said Thornton as he treated tour-goers to lunch on the roof top, which he calls Food from the Sky.

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