Global Convenience: Same Recipe, Different Format

JERSEY CITY, N.J. -- Convenience stores take on different forms throughout the world, but regardless of where they are located, the key drivers of success remain the same.

As noted by the presenters during today's Nielsen webcast entitled "Global Convenience Market Symposium," value for the money and additional services are the deciding factors in whether a c-store succeeds anywhere. However, other factors pop up on the must-have list depending on the region. For example, in South Africa, shoppers are looking for an inclusive, one-stop shopping trip, while in Taiwan, shoppers are seeking innovation.

In addition to this similar recipe for success, convenience retailers worldwide have several traits in common. Convenience is a premium channel with a younger target group that is a perfect avenue to launch new products, according to webcast moderator Mark Wohltmann, senior manager of the Convenience Competence Center at Nielsen. What does change from place to place, though, is the format, he said.

ASIA-PACIFIC
Peter Gale, managing director, retailer APMEA, India and Greater China at Nielsen, said small formats are leading store growth in the Asia-Pacific region with traditional convenience stores seeing significant growth. China added more than 4,000 new c-stores in the past 12 months and, even more noteworthy, South Korea added 4,000 sites as well. "That is a massive investment in a short time period," Gale added.

What makes this growth in convenience significant is that since the late 1990s, hypermarkets ruled the retail space in the Asia-Pacific region, he explained, until the global economic crisis hit and growth stalled. Now, c-stores in many countries "are growing and growing very quickly," Gale said, adding that Taiwan has the strongest convenience presence, but South Korea has the fastest growth.

Looking at snapshots of several markets in the region, Gale explained that Thailand -- with a population of more than 65 million -- still has plenty of room for growth. Case in point, there is only one convenience store for every 6,887 people. Traditional mom-and-pop stores currently number more than 300,000 sites in the country and that is where future growth will come from, he noted.

Moving to Indonesia, the standard convenience store has yet to make an impact -- only 5 percent of shoppers make regular visits to a c-store, but 35 percent of urban shoppers now use minimarkets as their primary grocery store, Gale said. IndoMaret and Alfamart are the two most prominent chains, adding more than 12,000 new stores over the past few years.

SOUTH AFRICA
In South Africa, the convenience channel is seeing a number of new formats and new partnerships, according to Jason Naicker, Nielsen's associate director of retail services, South Africa. One growing format is the forecourt convenience store. There are more than 5,000 forecourt service stations -- gas stations -- in South Africa and more than 3,000 forecourt convenience stores.

On average, consumers spend almost double inside forecourt c-stores than they do on fuel, he said. Additionally, forecourt convenience stores have 10 percent share of the top 20 categories, with cigarettes, carbonated soft drinks and energy/sports drinks ranking in the top categories.

One notable trend ramping up over the past few years in South Africa, according to Naicker, is the pairing of traditional retailers with convenience retailers. For example, Woolworths and Engen Quick Shop joined to deliver high-quality food at regular prices 24 hours a day, seven days a week. Another example is Pick 'n Pay teaming up with BP Express, he explained.

With these partnerships has come an uptick in loyalty programs in the convenience channel, with Woolworths and Pick 'n Pay transitioning their existing programs to the forecourt format, Naicker noted.

UNITED KINGDOM
Traditional retailers are also moving into smaller format stores in the United Kingdom, although they are going it alone without a convenience or gas partner. As Mike Watkins, Nielsen's head of retailers and business insights in the U.K., noted, consumer confidence remains low -- although there is some afterglow from the 2012 Summer Olympics and Paralympics -- and shoppers here are still on a fixed budget. They are managing those budgets by using a wider range of stores, which is putting increased pressure on supermarkets.

Convenience and smaller format stores appear to be the trend, he said, with convenience stores capturing 15 percent of the U.K. market. In fact, moving into the market are traditional supermarkets that are developing smaller formats. Waitrose is one example of this concept. Its smaller stores target local residents, commuters and visitors looking for everyday essentials, Watkins explained, adding that the company plans to build up to 500 of these smaller format stores.

Morrisons is another retailer shrinking in size. The traditional supermarket retailer was known for its large store format until the end of 2011 when it introduced M Local by Morrisons. Three trial locations have opened with 500-square-meter selling areas. Expansion plans call for up to 100 M Local by Morrisons locations in 2013. The new format gives the retailer an opportunity to move into highly populated areas like London, where there were few Morrisons stores, he said.

The change in size isn't the only change in the convenience channel. According to Watkins, the very definition of convenience has changed -- from location to mission. "Convenience is more than distance," he explained. "The shopping mission is equally important."

BRAZIL
In Brazil, convenience stores are ripe for success. The South American country is growing with political and economic stability, and fiscal austerity, but inflation is a major threat to that growth and unemployment, government spending and external debt are on the rise.

Despite "the blips on the radar screen, one key takeaway has been social performances," explained Rick Parra, Nielsen's director of retail services, Latin America and Brazil. With that has come a rise of the middle class, urbanization, an aging population and more women returning to the workforce, which have all spelled good news for the c-store channel here. What the country's retail landscape is seeing now is a shift in consumer preference from hypermarkets and supermarkets to stores that are smaller in nature and closer to home, he added.

However, Brazil's c-store format is small compared to other countries in Latin America. Convenience stores in Brazil are defined as convenience/gas stores and are primarily related to oil companies, Parra said. The channel shows "consistent and robust double-digit growth," even though there are only 6,640 c-stores in the country.

"Convenience stores are still in the developing stages in Brazil," he noted, adding that only 16 percent of the country's gas stations have convenience stores compared to 49 percent in Argentina.

By comparison, there are 63,000 bakeries in Brazil and Parra refers to them as "the traditional Brazilian convenience store." They are known for fresh-baked breads and also stock candy, snacks, beverages and cigarettes -- c-store mainstays. "It is something very unique to Brazil and it has an impact on convenience," Parra said, pointing out the main differentiation is the high percentage of in-store produced goods in the bakeries.

Convenience store operators are continuing to battle for the Brazilian shopper by extending hours of operation, improving food quality, offering premium coffee and increasing their foodservice offerings, he said.

UNITED STATES
Similar to the United Kingdom, smaller formats are taking center stage in the United States -- whether that is convenience, drug, grocery or dollar stores. "During the past four years of economic woes in the U.S., we have seen some innovation from retailers to drive the wave, not just ride it," explained Todd Hale, senior vice president of consumer and shopper insights, USA, at Nielsen. "The revolution of these formats has been really impressive."

From 2007 to mid-2012, there has been rapid small-box format expansion, he said, with Dollar General, Walgreens and 7-Eleven Inc. leading the way. "Small is gaining a lot of attention and ground in the U.S.," Hale said.

As with everything, though, there have been some winners and some losers. Walmart has found success with its Neighborhood Markets, yet the big-box retailer is still trying to find its footing with its Walmart Express stores. One the flip side, Tesco's Fresh & Easy chain has cut jobs and is scaling back the number of new store openings.

Aside from size, Hale pointed out several other interesting trends in the U.S. convenience channel. Foodservice is becoming more of a focal point and some c-store operators are beginning to enter the private label arena, he said, although he doubts private label in convenience will ever reach the level it is in the grocery channel.

He also said retailers are innovating when it comes to format. For example, Cumberland Farms has opened a few drive-thru locations and Kroger's Shop 24 kiosks -- vending machines that carry more than 200 c-store items -- are popping up on college campuses and in apartment complexes.

While the trend around the world seems to be smaller, there will be some who buck that trend. "I think some big formats are looking at the opportunity to go small, but I also think some small formats are going to look to go big," Hale said.