Four C-store Category Opportunities Unearthed by COVID-19

TEMPLE, Texas — Deemed an essential business during the coronavirus pandemic, the convenience channel has spent the better half of 2020 in the midst of a contradiction. On one hand, fuel volumes took a hit and foodservice operations stalled out while, on the other hand, COVID-19 has uncovered multiple trends and opportunities for operators, such as integration of technology solutions and soaring sales from the center of the store.

Convenience industry distributor McLane Co. Inc.'s virtual 2020 National Trade Show, which was held Oct. 21-22, highlighted four key prospects for the channel:

1. Foodservice

The foodservice category was among the hardest hit for convenience retailers during the first half of 2020 due to decreased foot traffic and retailers either opting to or being forced to shut down programs to adhere to COVID-19 safety precautions.

"As consumers resume their daily activities, we expect volume to pick back up," noted Chad Dewberry, product director – foodservice, for McLane.

He pointed to a number of emerging foodservice trends in the convenience channel as a result of the pandemic. At the top of the list are SKU rationalization and the transition from roller grills and warmers to products being sold in fully enclosed packages.

COVID-19 also has added another layer to the importance of cleanliness. "When you're in the business of selling food, you want everyone who walks in the door to think, 'This place is clean and safe to eat here,'" Dewberry said, adding that retailers can showcase their efforts by having an employee actively cleaning as customers are shopping.

Yet another foodservice category impact has been retailers' integration of delivery, curbside pickup and online ordering. "The pandemic has created a rush for retailers to make these operational changes work. And if there’s any channel that can make it happen, it's convenience," Dewberry said.

Looking forward, he expects two services to become even more important to consumers. One is touchless services or reduced touchpoints, such as the newest Coca-Cola Freestyle machine that allows consumers to control the dispensing mechanism from their phones. The other is foodservice vending.

"It may not be something to be dispersed nationwide, but it could be something to look into in the future as a way to meet consumers’ want for fresh, ready-made foodservice items on the go," Dewberry concluded.

2. Private Label

As consumers have become more financially conscious because of the global pandemic, the private label sector is gaining more attention. Eighty-two percent of shoppers say private label products present a value, 55 percent say these branded items meet their needs, and 89 percent say they trust private label brands as much or more than national brands, shared Teresa Voelter, product director for McLane Private Label and general manager of Consumer Value Products Inc.

"Consumers are facing great uncertainty. They are worried about their finances, stock levels, and whether or not there will be a resurgence of COVID as we enter the fall and winter. As a result, there’s been a decrease in brand loyalty and an increase in center-store traffic," she said.

Pre-COVID, private label sales totaled $136.5 billion, up 4 percent from the prior year. Post-outbreak, sales grew 16.6 percent, or by $4.9 billion, in the first quarter of 2020. Estimated annualized sales are expected to reach $183 billion this year, according to Voelter.

Convenience stores continue to play a strong role in this growth surge. The channel gained market share 12 of the last 18 quarters pre-COVID and has maintained an upward trend since March when consumers began stockpiling.

Three private label trends Voelter advises c-store retailers to pay close attention to are:

• Traditional grocery demand will continue to rise. "Sixty-five percent of consumers have tried new brands during COVID, so retailers should dedicate more space and provide greater variety and value options."
• E-commerce is here to stay. "Find a way to join the movement and stay relevant — whether it's working locally to find a delivery service or adding an e-commerce platform."
• Consumers rely on essentials. "Consumers value products made in the United States, especially within the health and wellness category."

3. Technology & Software

"No doubt 2020 will go down as one of the most unique and difficult in general. That being said, it's been amazing to see how retailers used technology and people to adapt to a once-in-a-lifetime year," commented Deon Johnson, vice president, customer technology and software, for McLane.

He highlighted the following key areas of focus in the technology realm: 

Opportunities

In addition to the explosion of e-commerce, video conferencing tools have been a game changer for companies during the pandemic. Platforms such as Zoom, Skype and Google Meet have produced tangible bottom-line benefits such as: reduced travel, increased time efficiency, reduced costs, improved collaboration, and improved work/life balance.

The other game changer is cloud-based technology solutions. "Companies are choosing the cloud because of its security, scalability, flexibility, mobility, storage and upgrades," Johnson pointed out.

Working From Home

Citing a recent national study of employees who are working from home, Johnson said 75 percent of Americans like working remotely because it has fewer distractions, and 25 percent of employers say they have seen an increase in productivity.

"The fact is people have figured out how to make working from home happen. Sixty-nine percent of employees do not believe there is a need to go back to a traditional in-office workspace. It's as if some kind of test has been completed. I guess time will tell what the future holds," Johnson said, noting that the challenge for employers with working from home will be properly onboarding and training new employees.

Adapting to the Times

Consumers are willing to try something different when it comes to delivery.

Home delivery solutions such as Grubhub, goPuff, Shipt by Target, Instacart, Amazon Fresh, Freshdirect and more signify how times have changed.

"I long for the days when I don't have to hear 'social distancing' ever again. That said, it does demonstrate that the goods and services retailers offer are still very much in high demand and people will adjust when they feel like the product is warranted," Johnson said.

4. Tobacco

When looking at the tobacco category, the starting point is the adult tobacco consumer.

"With the current environment, there certainly been some changes with discretionary income from that consumer," explained Greg Tradup, product director – cigarettes, tobacco, vape and CBD, for McLane.

The adult tobacco consumer received some stimulus money and unemployment benefits in the first half of 2020. Additionally, there's been a reduction in non-tobacco purchases, lower gas usage and lower gas prices, and less entertainment spend. 

Consumers have also changed their routines, making fewer trips to the store — a trend that is driving higher tobacco expenditures per trip and an increase in cigarette carton sales vs. packs, according to Tradup. 

"In the past, you could generally count on about 20 percent carton purchases vs. packs. That's almost swapped in some areas, where almost 80 percent of cigarette purchases are done by carton vs. packs," he explained. 

Temple-based McLane is one of the largest supply chain services leaders, providing grocery and foodservice supply chain solutions for convenience stores, mass merchants, drugstores and chain restaurants throughout the United States. McLane, through McLane Grocery and McLane Foodservice, operates more than 80 distribution centers across the U.S. and one of the nation's largest private fleets. The company buys, sells and delivers more than 50,000 different consumer products to nearly 110,000 locations across the U.S. In addition, McLane provides alcoholic beverage distribution through its wholly owned subsidiary, Empire Distributors Inc.

McLane is a wholly owned unit of Berkshire Hathaway Inc.