The Must-Dos for C-stores to Remain Competitive
NEW YORK — As competition heats up against other retail channels, the convenience store industry must stay ahead by bringing its A game.
According to The Nielsen Co., convenience stores in the United States have experienced relative strength and sales growth in recent years compared to other retail channels. With speed on its side, the convenience channel is modeled to deliver on specific consumer needs, while competitors play catch up.
Nielsen research suggests that the strength of c-stores will continue, but it’s not guaranteed, particularly as consumer shopping trips decline, competing channels diversify and e-commerce grows. Quick-service restaurants (QSRs) are also evolving by freshening their menus and remodeling their stores to appeal to younger consumers.
Setting c-stores apart is their reliance on drivers; however, interest in driving has decreased in the United States over the past few years. Notably, in 1983, 87 percent of 18-year-olds had driver’s licenses. More than 30 years later, that percentage has dropped to 69 percent. At the same time, U.S. gas prices are rising. The U.S. Energy Information Administration projects the average household will spend about $200 more on gas this year than in 2016, Nielsen said.
As a result of several consumer shifts — including driving trends and digital technology usage — Americans are making fewer shopping trips than just a few years ago.
The total number of U.S. retail trips is down by more than 1 million since 2012 (15.8 billion in 2016 vs. 17.6 billion in 2012). In the convenience/gas channel, U.S. consumers made an average of 11 trips in 2016, down from 14 in 2005, according to Nielsen Homescan data.
Consumers are, however, making up for their fewer trips with bigger baskets per trip, buying more units and spending more money per trip. Last year, convenience store sales eclipsed $140 billion, up 11.5 percent from $125.9 billion in 2012 sales.
Even with this evolving retail landscape, Nielsen projects that the convenience channel will continue to grow, with new stores leading the way. C-stores will also claim an increased percentage of channel spend, although not at the same pace as e-commerce.
Still, in order to grow, c-stores need to stay relevant to their core customers, according to the market researcher. The channel also needs to keep pace with other players that are diversifying and evolving with respect to product assortment, ease of access to products and modernization.
Nielsen household spend research shows c-stores continue to attract more men than women, which stands in contrast to other consumer product channels.
In addition, much of convenience's revenue comes from households with incomes of less than $70,000. In fact, just 28 percent of convenience/gas station revenue last year came from households with incomes of $70,000 or more, well below the 46 percent across all retail. Comparatively, 62 percent of premiere fresh grocery and warehouse club revenue last year came from households in this income bracket.
In 2016, convenience stores captured 85 percent of all sales through six categories: cigarettes, packaged beverages, candy, beer, salty snacks, and other tobacco.
Digging deeper, Nielsen data shows that subcategories like enhanced water; import, super premium and craft beer; ready-to-eat (RTE) meals; electronic cigarettes; tools and housewares; and sparkling wine all delivered mid-to-high double-digit sales growth for convenience stores last year.
The growth in subcategories like RTE meals and enhanced water align with broader consumer health and wellness trends. RTE options are also amplified by deli sales, which grew 8.3 percent to $1.2 billion last year, while fresh produce sales slipped about half a percent to $425 million.
Overall, recent sales trends magnify the degree to which consumers seek fast, economical and increasingly healthy options from their convenience stores, Nielsen explained.
That said, convenience stores are also more likely to attract people for meal-time trips rather than "fill-in" and "routine shopping" ventures — which means being well-stocked is now a consumer expectation rather than a desire.
PLAYING TO ITS STRENGTHS
Moving forward, convenience stores will need to continue to innovate to remain competitive, Nielsen pointed out.
At their core, convenience stores have three key strengths: speed, experience and personalization. These are the foundation blocks they can build upon as competition rises and channel lines blur.
To execute, convenience stores need to get the product mix right (evolving when needed), emphasize health and wellness, and think beyond RTE.
For inspiration, c-store operators have myriad examples to draw from. In the QSR realm, speed has become an essential service element. Convenience stores need to follow suit, ensuring that customers looking for a quick meal can get in and out swiftly. For example, positioning the deli at the front of the store, possibly with a separate checkout, would be a big customer pleaser, Nielsen said. For a slightly elevated experience, retailers could enhance their offerings with restaurant-style seating and broadening their menus for in-store service.
Convenience retailers need to think beyond the norm in the types of food offered, too. The fresh and natural food trends will be essential going forward, according to Nielsen, particularly as other channels have diversified into everything from sushi to gourmet sandwiches; offerings a step above what consumers can make easily at home.
Being transparent and health conscious — and displaying these attributes — will also be critical.
Aside from food and store layout, convenience retailers need to be continually innovative. This includes marketing more intelligently and across digital platforms, and developing personalized offers and rewards that are determined directly by individualized consumer shopping and purchase habits.
Brands and companies can never afford to get too comfortable or complacent in their positions, Nielsen cautioned. Competition can crop up at any time — in many ways, and on any device. Staying in touch with consumer preferences and needs is, and will always be, the way to stay ahead of the pack — even for those currently at the front of it, Nielsen concluded.
Click on the image above to see Nielsen research.