2018 was a year of change for the convenience retail industry — some net positives and some challenging developments. As the new year begins, what will last year’s changes mean for the industry in 2019? How can convenience retailers prepare, adapt and thrive in a more consolidated, more competitive environment no longer buoyed by high gas prices?
Acquisitions helped the largest convenience retailers get bigger in 2018, with 7-Eleven Inc. and Canada’s Alimentation Couche-Tard Inc. alone adding more than 1,800 sites. The wave of consolidation isn’t limited to national and multinational chains, either; mid-tier operators are also merging, as evidenced by Giant Eagle's takeover of Ricker Oil’s 56-store chain.
The average convenience retailer now has more stores in their operation, and there are 5 percent fewer independent companies in the market than there were in 2017. This trend is likely to continue and larger, more consolidated convenience retail networks will become the norm.
The wave of consolidations, however, points to an upcoming wave of integrations and a need for convenience retailers to attain a holistic view of their entire business.
As more convenience retailers look to unify their ERP (enterprise resource planning) and back-office systems with their operational data and customer loyalty programs from multiple banners under one corporate structure, they will need the right technology partners to make that a successful reality.
Customer Acquisition & Spend
According to recent industry data, sales in 2018 trended upward by nearly 9 percent, but in-store sales only increased 1.7 percent. Part of this is attributable to rising fuel costs — which are expected to trend in the opposite direction in 2019. But part of it is also due to a decline in the growth of in-store foodservice sales and a lack of new customer traffic.
Convenience retailers can improve their foodservice margins with better controls and planning, tailoring their offerings to accommodate regional preferences, and expanding to include global flavor profiles. Convenience retailers can also attract new customers with more robust loyalty strategies. Both of these operational trends will be on full display in 2019.
Managing Labor Costs
Labor costs have increased steadily, by 8 percent to 10 percent annually, for the past few years. This is compounded by the high turnover rate the convenience retail industry has always endured. Turnover was upwards of 115 percent in 2017, which is not an outlying figure in a tight labor market.
With relatively low rates of unemployment projected to continue through 2019, this will continue to be a challenge for convenience retailers — one they will have to address on the margins.
We anticipate widespread adoption of “just-right” staffing, as well as technology solutions that improve staff communications and streamline human resources functions; for example, self-service portals.
Loyalty & Better Utilization of Customer Data
If "convenience" is the most important aspect of convenience retail operations, then "loyalty" may be the second-most important. Loyalty programs are the key to capturing and leveraging customer data.
The more a convenience retailer knows about their customers' habits, activities and preferences, the better they can market to those customers and keep them coming back. A loyalty program that combines personally identifiable information (PII) with point-of-sale data can create insights that drive personalization, product mix optimization, real-time offers and many more advantages.
And this is crucial, as a 2018 C-store Shopper Profile report indicates that 73 percent of shoppers will shop more frequently (51 percent) or even exclusively (22 percent) at the convenience store where they are a loyalty member, and two out of every five loyalty shoppers will spend more than $10 in the store.
Some convenience retailers started down this road in 2018; we expect many more to rethink their data strategies in 2019.
Right Products for the Right Customers
Customer data includes understanding what customers purchase, how frequently and why.
As the industry copes with a downward trend in trip frequency — down 28 percent since 2014, a trend likely to continue in this new year — per-trip basket size will take on newfound importance.
Convenience retailers will need to drive customers from the forecourt into the store, toward the most profitable items, more often. To do this, retailers must take a closer look at their product mix and lean on their transactional data to stock both what customers want and what will maximize their margins.
Outlook for 2019
Overall, while there are persistent challenges facing convenience retailers, we predict that 2019 will be a good year for the industry from a year-over-year revenue perspective.
More retailers will adopt loyalty strategies that have a real impact on footfall and visit frequency, helping to combat the downward trend in weekly visits (which averaged 2.6 trips per week last year).
Convenience retailers will also improve the efficiency of their foodservice operations, which continue to represent the biggest opportunity for in-store sales. And as consolidations become the new normal, convenience retail networks will lean on technology systems that can connect valuable data and business intelligence from across their entire operations, banners and stores, creating greater efficiencies and generating insights into customer behaviors that can significantly impact profitability.
Drew Mize is senior vice president of ERP Solutions at PDI. He oversees global product management for PDI's retail and wholesale solutions portfolio of convergence and hardware technology. He has 20-plus years of experience in convenience retail and convenience retail technology. Prior to PDI, Mize was with Pinnacle Corp. for 11 years, serving as president at the time of PDI's acquisition of Pinnacle.
Editor's note: The opinions expressed in this column are the author's and do not necessarily reflect the views of Convenience Store News.