Convenience under Attack

Channel blurring is not a new concept, but the “convenience” aspect of it — unluckily or luckily for the convenience retail channel depending on how it reacts — is getting a lot of new play. Supermarkets, big-box retailers, drugstores and entirely new channels are claiming “convenience” as their own through concepts such as home delivery, at-store pickup, small-format/express stores and more.

While it is still only a small percentage of total grocery sales, home delivery is growing at double-digit rates, according to Nona Cusick, senior vice president of consumer products, retail and distribution for Capgemini, a global provider of consulting, technology and outsourcing services.

“Major metro areas are driving the majority of this growth as they are attracting a lot of new entrants such as Instacart, and established companies such as Google, Amazon, Peapod and Fresh Direct,” Cusick said.

MILLENNIALS DRIVING THE TREND

The younger generation is creating this convenience evolution.

“Millennials have grown up with the convenience of being able to order anything they want and receive it in two days or less — so, why not groceries?” Cusick explained. As a result, many of the players in metropolitan areas are now targeting same-day delivery.

“Home delivery for packaged goods, cleaning supplies, beauty products and paper products, for example, will continue to grow as the competitive landscape expands and the cost differential over brick-and-mortar continues to decline,” she predicted.

Uber, best known for its crowd-sourced taxi driver app, launched Uber Corner Store in Washington, D.C., this past August. Just months after piloting the new delivery service, Uber expanded and rebranded the program to uberESSENTIALS in December. The service — still a limited-time experiment available only in Washington, D.C. — boasts that it can deliver items (many traditionally found in a convenience store, like candy, snacks and pain relievers) directly to consumers in 10 minutes or less.

According to an uberESSENTIALS blog post, users select and confirm their delivery address and then toggle over to ESSENTIALS in the Uber app and add products to their carts. After users check out and place their order, a driver will notify them upon arrival. The service is available 9 a.m. to 9 p.m. Monday through Friday, and 9 a.m. to midnight Saturday and Sunday.

Regarding at-store pickup, Wal-Mart Stores Inc. launched its Walmart Pickup Grocery service in its hometown of Bentonville, Ark., in September. The idea is that registered customers can place an order from the website, which offers approximately 10,000 grocery and consumable products including fresh meat, dairy and common household goods, and then schedule a pickup time. The time can range from two hours to three weeks after placing the order. When they drive to one of the kiosk stations at the pickup site, they notify an attendant who brings the order to their car. There are no hidden fees or surcharges, according to the retail giant.

New research released by The Nielsen Co. in late April found that 13 percent of respondents in the United States currently order online for home delivery. However, one-third said they are not willing to try. Meanwhile, one-quarter of global respondents said they currently order grocery products online for home delivery, and 55 percent are willing to use the option in the future, according to the Nielsen report entitled Global E-Commerce and The New Retail Survey.

At this time, curbside pickup outside a store is one of the digital grocery shopping options garnering the least interest in the U.S. According to Nielsen, 39 percent of U.S. respondents to its survey said they are not willing to use online ordering for curbside pickup.

EXPRESS STORES: BIGGEST THREAT

Of the three potentially threatening concepts to c-stores — home delivery, at-store pickup and small-format/express stores — the growth of the latter across all retail channels is the biggest danger to convenience stores according to experts at Catapult Marketing a conversion marketing agency that works with its clients to turn shoppers into buyers and buyers into brand advocates via insight-driven marketing.

“The role of convenience has always been to provide instant/on-the-go solutions to the consumer in close proximity to their immediate location” stated Jeff Compo, vice president of Catapult Marketing. “Now, many big-box, grocery and drugstores are coming into the smaller format space in large numbers and are able to provide convenient solutions to shoppers whose mission is not only instant consumption, but a fill-in trip as well.”

Even natural grocer Whole Foods Market Inc. plans to introduce a new smaller store format that will offer high-quality foods at value prices. Geared toward millennial shoppers, the new stores will feature a modern streamlined design, innovative technology and a curated selection of products. The first of these new stores is slated to open in 2016, and Whole Foods expects the standardized design and product assortment should allow for fairly rapid expansion.

The new format is meant to be a complementary brand — not an alternative — to current Whole Foods Market stores. The retailer anticipates shoppers will visit both stores: the traditional, larger Whole Foods Market stores for their typical weekly grocery shopping trip, and the new store format for fill-in shopping trips.

Big-box stores are definitely discovering value in small formats for moving merchandise fast and leveraging their brand recognition, according to Ricardo Belmar, director of product management and marketing for Hughes Network Systems, which provides managed network services for retailers and other businesses. The threat is that “big-box brands have a higher level of brand awareness and affinity than smaller convenience store chains,” Belmar reasoned.

Walmart has several smaller formats in operation today and is in the process of expanding its reach, including Walmart Neighborhood Market (613 locations as of March 31), Walmart on Campus (five locations as of late April) and Walmart to Go (one location in Bentonville). Target Corp., too, is rapidly growing its small-format TargetExpress concept. In February, Target said eight of the 15 new U.S. stores it will open in 2015 will be TargetExpress locations.

These smaller format/express stores have the opportunity to become “super convenience stores” driving more volume and larger baskets, according to Compo of Catapult Marketing.

HOW C-STORES CAN FIGHT BACK

Convenience is all about having the right product at the right time for the customer to buy, according to Belmar of Hughes Network Systems. “Larger retailers are leveraging store analytics to better understand their merchandise sell-through and quickly make adjustments,” he told Convenience Store News. “Convenience stores built their business around this, but do they have the tools necessary to stay competitive with the fast pace of innovation in this area?”

Also, larger retailers are spending more dollars on improving their in-store customer experience with technology and empowering their store associates with better product knowledge. Again, Belmar believes “this is an area most c-stores cannot compete with unless they invest a similar level of spending.”

Buy online and pick up in-store could become an opportunity “for savvy c-store chains looking to partner with big-box brands to provide ‘closer to home’ delivery points for consumers,” Belmar said. “This is what Amazon is doing with its Amazon Locker service for achieving faster home delivery.”

Continued differentiation is a must for convenience stores today and in the future, according to Cusick from Capgemini. “Convenience stores have to continue to differentiate themselves from other channels,” she expressed. “With their neighborhood locations, they are ideally located close to customers, but they need to drive a differentiated customer experience that includes, but is not limited to meal solutions and products.” She also pointed to loyalty programs, mobile ordering and quick pay as relevant c-store solutions.

Jon Fiondella, c-store specialist at Catapult Marketing, noted c-stores recognize the convenience threat from other channels and are responding by expanding their offerings from basic prepared foods to healthy meal solutions. “They are expanding the physical footprint of their stores to allow for more healthy, fresh foods and cold beverage items,” he explained. “Additionally, we know that most shoppers have a preferred c-store they frequent for their staple items like gas, cold drinks and coffee. There is an opportunity for c-stores to leverage this loyalty to serve more shopper needs.”

Like Cusick, Fiondella mentioned loyalty reward programs as being on the rise at c-store chains, offering them a way to directly compete with grocery and drug stores.

Ultimately, reclaiming their strength in convenience will be worth it for c-stores.

“Shoppers’ desire for convenience is not expected to diminish anytime soon,” said Compo. “That is especially true considering how millennials shop today with more frequent fill-in trips vs. traditional stock-up [trips].”