Small Format, Large Impact: Why Clustering Is Key to Convenience Success

Today, it seems like a convenience store can be found on almost every corner. But even though they are in close proximity — a block away, a mile down the road, or even on opposite edges of the same neighborhood — each location can serve a unique group of customers. As such, convenience stores must achieve a keen understanding of the customers who frequent each store.

No matter the size, there’s no reason a small-format brand can’t “think big.” Mining real-time data and adopting the practice of clustering can provide a high degree of familiarity with a customer base. In addition, sales insights can be leveraged to have better conversations with suppliers, leading to space allocation prioritizing the right assortment mix.

Clustering Nurtures a Deeper Understanding of the Customer

The ability to cluster is a big indicator of success, highlighting store-specific category demand and product preferences.

You may look at the population living around a convenience store — for example, middle-income families with at least two children — and tailor your assortment for that demographic. However, clustering enables you to better tailor your assortment to the exact customer walking through the door, instead of the hypothetical needs of those who live nearby.

Think about how the customer base at a convenience store can fluctuate rapidly. Say there’s a construction site nearby that will be up and running for six to nine months. The construction team will stop by in the morning for coffee or energy drinks, and later for ready-to-eat options for lunch. Some may even pay a third visit as they head home at night, grabbing another soft drink or a small grocery item. Just as quickly as you begin to understand the needs and product preferences of that group, the construction work is done and they move along, both out of the geographic area and out of your daily customer base.

This is why it’s important for the exercise of clustering to be run frequently. There are many factors that impact category and product demands, and clustering enables retailers to understand that with a higher degree of certainty.

Understanding Customer Needs Leads to Improved Supplier Negotiations

Clustering can help c-store operators make the right decisions for customer needs, certainly. But the practice also contributes to strategic assortment decisions — not blindly accepting what's dictated by corporate or coming from a distribution network.

Convenience retailers have the scale and resources to gauge insights from their franchisees for better decision-making, and therefore need to do a better job of educating them to be more competitive in the convenience world. And being competitive requires a two-way dialogue with the store locations and other points in the distribution network.

Providing insight such as “These products won’t sell for me” or “I can think of three locations that would perform well for this product” creates a stronger assortment because the customer is at the center of the decision.

Retailers should also be in the practice of testing and learning, especially with innovation in the CPG space. Be cognizant of what items you bring in. Commit to testing a brand-new item for eight to 12 weeks to see how it performs.

The key here is to hold yourself accountable to evaluating those items after that period of time. Stick with that plan, and remove products that aren’t performing well or not leading to repeat purchases. In learning from one store’s performance, you can either explode it out into stores with similar customer bases or let it run its course and rationalize that SKU out of your assortment.

Effectively Allocating Inventory Is Critical in a Small Store Footprint

Assortments and product options are growing, but store formats are not. Limited footprints call for an extremely agile and intelligent process to determine the right use of space, especially when most retailers have less than 90 seconds to impact a customer who comes from the pump into the store.

Add-on and impulse sales are important, so data must guide decisions for those products placed most adjacent to the checkout.

Retailers should have the ability to analyze in-store space for categories that are planogrammed, while also understanding sales generated from things like the hot dog rollers and soda fountains. This is important given that more convenience stores are embracing fast-food concepts.

And it’s critical that retailers understand their in-stock position at all times, doing continual cycle counts. Retailers should stay on top of ensuring key categories are stocked for peak times of day, and understand where they may have lost sales due to out-of-stocks.

Data Is Integral to Remaining Competitive in Convenience Today

At any time, a retailer must be able to analyze space, monitor out-of-stocks, ascertain how products are performing, and uncover where opportunities for improvement might exist.

Only by using data and science can convenience retailers remain competitive, because they’ll be leveraging insights to give customers exactly what they’re looking for. 

Gina Hargrave serves as head of category planning at Symphony RetailAI and has 20 years of experience in FMCG retail, focused on category and space management business processes and solutions.

Editor’s note: The opinions expressed in this column are the author’s and do not necessarily reflect the views of Convenience Store News.