How C-stores Can Outcompete QSRs Through Digital

NATIONAL REPORT — The convenience store industry has been transitioning away from the old "Cokes and smokes" model and toward a foodservice-focused business model for some time now, with foodservice currently accounting for the second-largest revenue category after tobacco. The impact of the COVID-19 pandemic has only hastened that change, shifting the competitive landscape so that c-stores are now regularly competing with quick-service restaurants (QSRs), as well as other convenience retailers.

Widespread adoption of mobile and online ordering, curbside pickup and delivery during the pandemic means consumers today view these amenities as standard. C-store operators will quickly find themselves left behind if they don't offer these options, according to a recent Convenience Store News webinar sponsored by Paytronix Systems Inc.

Now is the time for c-stores to focus on improving their competitive positions. While overall c-store foodservice sales declined in 2020, "many are expecting a big comeback as people begin to resume their normal routines again," said webinar presenter Jessica Shelcusky, convenience store marketing specialist at Paytronix, whose platform supports more than 500 retail and foodservice brands. 

Over the past year, Paytronix has observed increased interest in favorite comfort foods, such as fried chicken and "pandemic-proof" pizza. Customers are also interested in exploring new ways to get this food, including drive-thru and curbside pickup. This is happening at both c-stores and QSRs, noted Shelcusky, 

Seven omnichannel c-store trends expected for 2021 are:

• Customers coming back, but slowly;
• Delivery anytime and anywhere;
• Evolving formats;
• Acceleration of mobile and loyalty programs;
• Industry consolidation;
• Regulatory uncertainty; and
• Localized customer experiences.

Clearly, while consumers are looking forward to returning to some semblance of normal, not everything is going to go back to how it was — a sentiment shared by Incisiv, a leading insights firm for consumer industry digital transformation leaders.

"We recommend retailers make it easier to find store inventory online, simplify the in-store pickup experience, and help their store associates build stronger relationships with customers digitally," said Quarav Pant, chief insights officer for Incisiv.

The numbers bear this out: 40 percent of consumer spending is expected to be attributed to Generation Z this year, a very digital-savvy generation; and 60 percent of U.S. consumers currently order takeout at least once per week. Online ordering is projected to reach $28 billion in sales by 2023.

This presents considerable opportunity for c-store operators, but they will have to deal with unique concerns not shared by restaurants. For example, how many SKUs should their online menu include? Will it have center-store items or just foodservice? Packaging is also a concern, as c-store customers could order a two-liter bottle of soda to go with their freshly prepared sandwiches, only to find the bottle has crushed the food if not packaged correctly. ID checks for alcohol and tobacco purchases are also extremely important and prone to complication based on state and local regulations.

There is also an offline component to online ordering. Will delivery be handled in-house or by a third party? How does online ordering for pickup affect staffing levels? Will there be separate lines for picking up online purchases?

C-stores must answer these questions to stay competitive with QSRs. They should consider what they want to offer and how they want to offer it when choosing a vendor for online ordering, according to the webinar. 

Another part of translating the in-store experience to the online-ordering experience involves considering product marketing offers and vendor funding that customers typically see visually as they browse the aisles. Retailers may want to consider having the ability to offer and track the redemption of such offers when ordering online.

Platforms that include machine learning "aisles" are a plus, as they can make recommendations based on what customers already have in their baskets, helping to simulate the in-store prompting of impulse purchases.

Alcohol sales are also worth adding where legal. Nearly 40 percent of c-stores focused more on beer and wine in 2020 as sales spiked, according to NACS data. However, retailers must be sure their platform makes it clear to customers that they will have to show ID at the time of pickup.

The Opportunities Around Loyalty Programs

Loyalty programs are another key method of staying competitive, especially against QSRs that may not have their own rewards program.

AlixPartners research found that 50 percent of high-frequency customers (three times per week) called loyalty "very" or "extremely" important. More notably, an 18 percent increase in online ordering frequency occurred when loyalty was added; customers simply don't want to lose out on their loyalty benefits.

Investing in an online ordering platform also represents an opportunity to upgrade a retailer's existing loyalty program. There is frequently room for improvement, as just 40 percent of customers report being satisfied with their existing loyalty program. Improving loyalty while adding an online experience is a win-win scenario.

Loyalty programs that segment customers based on their pump and in-store habits enable a more effective targeted marketing strategy, according to Paytronix, which has identified several clustering segmentations that allow c-stores to better target customers. For example, gas clustering can help identify other high-margin products to entice gas buyers to visit, while tobacco clustering presents a potential opportunity to target some customers with offers on non-restricted products.

Above all, c-stores should actively manage their loyalty programs and test out new initiatives. Loyalty programs, in general, drive more visits and sales while generating positive ROI, but game-changing, brand-differentiating benefits can be unlocked by retailers willing to experiment with innovative, data-driven campaigns.

An on-demand replay of this webinar, "Growing Competition: C-Stores & Quick-Service Restaurants,"  is available here.