CONSUMER | 05-17-2017
Compared with adjacent retail channels, U.S. convenience stores have boasted relative strength and sales growth in recent years. Built on the premise of speed, convenience stores are modeled to deliver on specific consumer needs that competing channels don’t yet address fully. While Nielsen research suggests that the strength of convenience stores will continue, it’s not guaranteed, particularly as consumer shopping trips decline, competing channels diversify and e-commerce grows.
Today, convenience stores are highly relevant to consumers’ on-the-go lifestyles and are well equipped to deliver products that meet their immediate needs. But channel distinctions are starting to blur. E-commerce, click-and-collect options and a trend toward stores with smaller-footprints and diverse offerings are raising the bar of competition. Quick-serve restaurants (QSRs) are also evolving by freshening their menus and remodeling their stores to appeal to younger consumers.
It’s also important to note that convenience stores are largely reliant on drivers, yet Americans’ interest in driving has declined over the years. In 1983, 87% of 18-year-olds had driver’s licenses; more than 30 years later, that percentage has dropped to 69%. At the same time, U.S. gas prices are rising. The U.S. Energy Information Administration projects that the average household will spend about $200 more on gas this year than in 2016.
As a consequence of several consumer shifts, including digital technology usage and driving trends, Americans are making fewer shopping trips than just a few years ago. According to Nielsen Homescan data, the total number of U.S. retail trips is down more than 1 million since 2012 (15.8 billion last year, vs. 17.6 billion in 2012). In the convenience/gas channel, Americans made an average of 11 trips in 2016, down from 14 back in 2005. Consumers are, however, making up for their fewer trips with bigger baskets, buying more units and spending more money per trip. Last year, convenience store sales eclipsed $140 billion, up 11.5% from $125.9 billion in 2012.
Even with the evolving channel landscape, convenience stores will continue to grow, with new stores leading the charge. They will also claim an increased percentage of channel spend as well, albeit not at the same pace as e-commerce.
But in order to grow, convenience stores need to stay relevant to their core customers. They also need to keep pace with other players that are diversifying and evolving with respect to product assortment, ease of access to products and modernization. So who are convenience store shoppers and what are they buying?
In looking at household spend last year, we see that convenience stores attract more men than women, which stands in contrast to other consumer product channels. Also, much of this channel’s revenue comes from households with incomes of less than $70,000. In fact, just 28% of convenience/gas station revenue last year came from households with incomes of $70,000 or more, well below the 46% across all retail. Comparatively, 62% of premiere fresh grocery and warehouse club revenue last year came from households in this income bracket.
In 2016, convenience stores captured 85% of all sales through sales from just 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, e-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% 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. That said, convenience stores are also more likely to attract people for meal-time trips rather than “fill-in” and “routine shopping” ventures. And that means being well stocked is now a consumer expectation rather than a desire.
As the relevance of the channel concept fades, convenience stores will need to continue to innovate to remain competitive. At their core, convenience stores have three key strengths: speed, experience and personalization. These are the foundation blocks that they can build on 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, convenience 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. Positioning the deli at the front of the store, possibly with separate check-outs, will be big customer pleasers. For a slightly elevated experience, retailers can enhance their offerings by offering restaurant-style seating and broadening their menus for in-store service.
When it comes to food offerings, convenience stores can no longer afford to stick to the basics. Leading on fresh, natural food trends will be essential going forward, particularly as other channels have diversified into everything from sushi to gourmet sandwiches—offerings a step above from what they 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. The includes marketing more intelligently and across digital platforms, 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 and complacent in their positions. Competition can crop up at any time—and in many ways, 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.
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