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Merchandising by Market

C-store operators know they can't compete with a supermarket's variety and pricing when it comes to grocery items, and most consumers don't expect them to try. Impulse items, grab-n-go snacks and innovative beverages are c-stores' main priorities, but when mulling over additional profit centers, why not consider grocery?

The truth is, the success of a grocery set depends on the market and location of the store, and savvy retailers are stocking their shelves with products that fit what their customers need. "As the economics of c-store sites change away from motor fuel as a source of profit, along with cigarettes in some cases, retailers are looking for new opportunities for growth, and grocery has been an undeveloped category historically because c-stores didn't see themselves as a grocery store," said David Bishop, director of specialized and small- store formats at Willard Bishop Consulting in Barrington, Ill.

When it comes to merchandising any category in the store, retailers need to look at their customer mix as well as market area, but when it comes to grocery, these factors can be especially important. At Valero Energy Corp., the company's 1,428 stores cover various locations, and the grocery mix varies by store.

"Where the store is located dictates what products we carry," said Hal Adams, vice president of merchandising at Valero, headquartered in San Antonio. "If we are located in an urban, office area, it is smart to concentrate on microwaveable soups. By an apartment

complex, we would expand more on the fill-in needs of a household and pet needs, since cats are densely populated in apartment buildings."

Bishop refers to these differences as "customer need states," and stresses the importance of understanding how they vary by location. "Understanding the various needs of your customers and consumers in the market is an issue taking more relevance today," he noted. "The needs of the customer are not the same across the board, and it becomes much more challenging for retailers to merchandise and lay out their stores without this information."

These "need states" are starting to impact all categories in the store and dictate how much space is dedicated to each set. Many retailers taking the plunge into scanning use the data available to check product movement and determine those products remaining stagnant on the shelves. This becomes especially important when dealing with a section like grocery, which may be already limited on space.

"Retailers need to be looking at their movement reports to see what sells and what doesn't," said Rick Staley, director of marketing at Family Express Corp., a 43-store chain based in Valparaiso, Ind. "It's something you have to evaluate at least three to four times a year in the grocery category because as the competition gets more aggressive, slow movers will hurt sales."

Additionally, if customers don't see what they want, they often won't come back. "You have to carry the items the consumer needs or they won't stop at your store," said Adams. "If they stopped there once or twice and you didn't have what they need, you become more of an inconvenience than a convenience, and they will drive an extra five miles to the supermarket instead."

Defining the Mix

Location and customer needs remain important, but another factor to consider is the size of a store. A bigger store allows for a more creative grocery set, but what happens when a store is limited on space? Valero chooses to start with the basics and grow from there.

"We have a very basic mix to start with, but if we have a larger store we will expand it," said Adams. "Breakfast items like cereal, Pop Tarts, coffee, condiments and paper goods would be done first because they are immediate needs. Breakfast time is typically a frantic time at home and people will run to a c-store to fill in on items like coffee. But as it gets later in the day, they will have more options to fill in rather than a c-store."

Adams stressed first filling in the grocery set with immediate consumables and then adding from there based on location. "We have a basic six-foot section with both edible and non-edible items, like paper and pet, and once the immediate consumable items are set, you can grow with the size of the store," he explained. "If the store is set on a highway or near a park, we would grow the paper-goods section because people on highways are often on their way to visit somewhere."

However, not all of the smaller stores are laid out with the same products, according to Adams. Valero has several schematics based on size and location of its stores, and often will change out one shelf to accommodate the needs in an area. For example, in an industrial area their stores would offer more coffee and soups, noted Adams.

When comparing rural areas to urban and highway locations, Bishop recommends a heavier mix of take-home items in rural areas and more immediate consumables on highways. "A rural area's set could easily be 75 percent take-home and 25 percent immediate consumables, while an interstate would be flipped on that, if not 80/20," he explained. "Urban areas, on the other hand, would be more of a 50/50 split. 7-Eleven has gone into opening locations in corporate business buildings where consumers would stop by the store on their way home, so its not always about the immediate consumables, but also take-home products like macaroni and cheese or spagetti sauce. However, in this type of urban environment, you will get a fair amount of foot traffic for immediate consuption as well."

Family Express varies its products along with set sizes. Half of the company's stores are in rural settings, while the other half are in city locations. The company also operates three stores on interstate highways. "The interstate stores are mostly just four-foot sets, and the more rural the area becomes the larger the sets become," said Staley. Depending on the size of the store, the sets can be as large at eight feet, he reported.

In its rural stores, Family Express carries Kraft Macaroni and Cheese, Heinz ketchup, Miracle Whip, cans of corn and chicken noodle soup on the grocery shelves, alongside Coffee Mate, tea and sugar, according to Staley. "We have an advantage because in a lot of rural towns we are the only player around," he said. "We don't have any dollar stores or Super Wal-Marts yet, and in some towns it may be a 15 to 20 minute drive to a supermarket. We are a quicker stop."

When space allows, Family Express will add more variety to its set — additional cans of soup, ketchup and mustard, along with a cereal line and baking goods like flour. However, a city or interstate store is set up differently. "Once you get into the city or highway locations, people just don't shop for the same items and they don't move as well," said Staley.

Drawing A Crowd

At Family Express, the grocery section is a big draw for two reasons — bread and milk. The company distributes its own products from its distribution center and is able to bring bread and milk to its customers for less than most of the competition.

"We have a very aggressive bread program," said Staley. "We are about 50 to 60 cents cheaper than any of the grocery stores or Wal-Marts. We sell two 16-ounce loaves for 95 cents. We are not making that much, but are using it as a draw to get people into our stores — especially female shoppers."

The company also offers milk at very competitive prices, and posts its price at the pump so customers are aware. "We advertise on the gas marquee for milk and it has really drawn in the traffic," noted Staley. "The bread and milk pricing have really impacted our sales on grocery items." The program has been in place for two months and Staley reports customers tend to buy more items now.

Additionally, self-distribution allows the company to offer fresh bread and milk daily at its stores, which is another attractive factor for customers. "We have three delivery trucks that hit our stores every day, and we promote the freshness of our bread and milk, which I think has really hit home for customers. It has increased our sales dramatically — by double digits compared to last year."

Staley attributes this program to increasing the traffic count inside the stores, and as a result, Family Express is having "a record year," he said.

The Best Questions

In order to determine how grocery should be represented in a particular c-store, retailers need to consider a number of factors, according to Bishop. Some questions to ask: What is the physical size of my store? What is the overall traffic volume coming in and out? What is the geographical location of the store in terms of supermarkets nearby? What is currently selling in the edible grocery category of my store ranked on units sold and gross profit?
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