Food retail is an increasingly competitive game, where maximising sales and driving profits are the key challenges - but what paths are open to today's convenience stores? Delegates at the recent Insight conference "The Future of Convenience - Making Change Happen" were offered some possible solutions and a candid eye-opener to the dynamics of the convenience sector.

Musgrove Group managing director and Musgrove SuperValu Centra chairman Seamus Scally scanned the London conference delegates with an air of assurance.

"To be successful in today's retail sector you need three things," he began, with the hint of promise that the information he was about to divulge could turn around the audience's businesses overnight.

"...Convenience, convenience and more convenience."

It was clear from this point that operational renovation would first involve going back to basics, and as the conference progressed it was equally clear that a good appreciation of the basics remained elusive in the sector. From knowing their customers, to gauging their competition, too many convenience retailers are not making the most of their opportunities and strengths. Conference speakers provided some interesting and apposite lessons on what exactly the c-store operator should be doing to get it right.

Know your customers

The most important factor in any retailing operation is an appreciation of the customer base. A better understanding of your shoppers, argues Mike Greene, will help towards the growth of your business. As Director of Implementation at Harris International Marketing (HIM), Greene overseas the Convenience Tracking Programme (CTP), a vast compilation of consumer interviews and figures that claims to be representative of 80% of c-shoppers.

The EPoS (Electronic Point of Sale) only tells half the story with its record of what was sold yesterday, argues Greene, and what is more it "turns us all into office-bound analysts". By getting out on the shop floor, Greene admitted "it often surprises me how wildly different perception is compared to reality".

By operating at that shop floor level, and examining why consumers made the selections they did, leaving other products behind, the CTP exposes missed sales opportunities and offers retailers a chance to cater for a market that has yet to be maximised.

How much can you charge?

A useful knowledge tool thrown up by the CTP concerns the issue of price perception, leading HIM to conclude there is no such thing as a KVI (known value item). Speed is the key to convenience shopping, says Greene, and retailers have been placing the wrong focus on price.

Interestingly, the 57% of shoppers who come to c-stores from within a ¼ mile radius expect to pay a price premium for the convenience. However, figures gathered by HIM have shown that consumers' price perceptions are often over-estimates. For the same product worth £1 (US$1.45) in the supermarket, shoppers believe on average that they are paying £1.14 in the c-store. In fact, they are paying just £1.09. Focus then, says Greene, on changing this price perception rather than eroding margins through price-cutting.

Round-the-clock competition

Only with a reliable knowledge of their customers can any retailer hope successfully to identify, and then of course undermine, their competition. Acknowledging where the shoppers have come from is a good start, but,


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according to Mark Orchin from Nestlé UK, retailers must also be aware of the "24 hour competitive cycle" in which they operate.

"We all manufacture vast amounts of products," commented Orchin: "But do we think about where they go?"

To prove the point, Orchin told the story of how Shunichiro Uchimura, executive vice president of the Family Mart Japan convenience chain, described US burger behemoth McDonald's as his main competition in Japan. Why? Because Maccie D's exerted a powerful pull for his shoppers' day-part spend in the lunchtime hours. This illustrated the breadth of the market in which c-stores compete. Few see themselves as directly competing with fastfood outlets, but in terms of convincing hungry lunchtime shoppers where to buy a snack, they must be prepared to wrestle with the burger bars, and the cafés.

To this end, C-store operators can employ a number of tactics. Firstly, they can consider hiring trained staff, to compete with the customer service offered at restaurant style outlets. Day-part merchandising, which is big in Japan, can tempt the customer to buy something for the next meal as well as the top-up carton of milk. Orchin also stresses the importance of stocking more high-margin products, such as hot beverages, chilled foods and sandwiches.

"There must be a diversification into the higher margin," he says, maybe at the expense of mid-range goods such as stationery or ice creams. A good example of this is the hot coffee machines present in several Balfour convenience stores. Flexible (not requiring plumbing), de-skilled and convenient, Balfour's Aldershot outlet sells about 100 cups a week, not exactly the most popular product in store, but one driving a large profit. What's more, with these advances, convenience stores are better equipped to fight for their share of the day-part spend in the food retail sector.

What can you sell?

All the talk of introducing more high margin products raises a rather fundamental question for C-store operators: what can they sell? According to Greene, "less is most definitely more".

However, retailers must be careful to ensure they are continually well stocked with the product range they select. Placement and availability drive impulse purchases and "wastage paranoia is not justified". Milk, for example, has a seven-day shelf life. There should be no reason why the basic offering is not consistently plentiful, says Greene; lose a local shopper who gets frustrated with your lack of milk, and you'll lose out on pounds worth of related impulse buys.

Along a similar theme, Costcutter Supermarket has developed a working relationship with Bass Take Home that has seen the convenience outlets stock Bass' alcohol range. Alcohol has a retail margin of more than 20% and sales within convenience stores have seen double-digit growth in recent years. The two companies are still compiling the figures on the impact licensed areas are having on sales from the rest of the shop floor, but Costcutter's trading and marketing director, Angela Barber, and Bass' national account manager,


"We thought that one size fits all when actually it fitted nobody."
- Ashley Brown, Palmer & Harvey (P&H)

Robin Mackay, are adamant that the link-up is allowing both companies to maximise their profits.

Make logistics networks work

Once you have decided what is to be sold within the store, a tailor-made logistics network is an essential tool. Ashley Brown, national sales manager for Palmer & Harvey (P&H), explained how through its dealings with convenience stores, the company came to realise that a rigid approach to a delivery network is simply no good for convenience retailers: " We thought that one size fits all when actually it fitted nobody."

Many retailers are struggling under time limitations and supplier-controlled distribution networks, where the RTM (route to market) is owned by one brand leader. Brown stresses the need for logistics providers to offer flexible, tailor made services that allow the sector to develop unhindered. He illustrated this with the potential move of convenience stores into foodservice outlets. "Foodservice and retail have proved uneasy bedfellows so far," he acknowledged, but "retail supply chains need to go far enough into foodservice to meet the needs of retailers as they experiment in those areas".

So Scally was right; this isn't rocket science, it's all about commonsense convenience. What is vital is open communication between manufacturers, suppliers, and retailers, more practical consumer profiling, and offering the chosen range of goods and services consistently. Perhaps the biggest challenge facing convenience retailers today is that of peeling back the accumulation of bad habits, and making those changes necessary to move forward and experiment. Stripped back to basics, retailers can be free to maximise their own sales and tip those individual balances in their favour.


To view related research reports, please follow the links below:-

Convenience Shopping: Future Store Formats and Product Innovations

Convenience Retailing