By Greg Lindenberg, CSP Magazine
CHICAGO – “You can’t just sit on the sidelines and watch for growth,” Todd Hale, Nielsen consultant and principal at Cincinnati-based Todd Hale Inc., said in presenting the Tracking Trends That Matter session at the 2018 NACS State of the Industry Summit in Chicago this week.
“It’s not just going to happen. You need to invest in growth,” he said.
With more than 39 years of experience in the consumer research industry including 30 years at Nielsen, Hale is a devoted student of consumer shopping behavior, buying and immediate consumption.
Retailers need to be ready to ride the waves of change or get on board for the opportunities they present, he said. Here are some of the top retail trends Hale sees affecting the convenience-store industry in 2018 and beyond:
1. Store Count
“We’re hitting the wall on store expansion,” said Hale.
The drug channel is seeing contraction, and mass merchandisers are seeing a decline in store count related to Kmart store closings. In the supermarket channel, most of the expansion has come from niches, either on the high end—Sprouts, Whole Foods—or low end—Lidl and Aldi.
But 10 of the top 20 chains that have added the most stores in the last 10 years are convenience stores: Couche-Tard, 7-Eleven, Speedway, GPM, Casey’s, Andeavor, Sunoco, Cumberland Farms, Pilot Flying J and QuikTrip. And nine of the top 20 chains that have the most stores are c-stores: 7-Eleven, Couche-Tard, Shell, Speedway, Chevron Texaco, BP, ExxonMobil, Sunoco and Casey’s.
2. Retail Format
But “retail format is no guarantee of success,” Hale said.
Drug stores are suffering from either flat or negative front-of-store sales; they’re driving growth through their prescription drugs.
One opportunity for c-stores is around aging populations, Hale said. “The nice thing about older people is that they shop a lot; they make a lot of trips. What else have we got to do? One channel that has been missing out on opportunities with trips for older people is the drug chains. How many of you have gone from 30 days to 90 days on your prescription refills, either at a store or through mail order? You’re not making trips to drug stores anymore,” he said.
Hale doesn’t see Dollar General’s DGX small urban format as a threat. “While it’s interesting that they’re playing in this space, they’re overall strategy is probably not to add a lot of these just yet. They’re experimenting with that format. I’d be more concerned about the fact that that they’re adding 900 stores” in its traditional format, he said.
Hale said convenience retailers should be more concerned with Target’s small format. It plans to have more than 100 of these hybrid convenience-store-drug-store-mass merchandisers, although most of the locations are more urban or near college campuses, so that threat may be limited too.
“Operating a small format is something that everybody talks about and more and more retail channels are doing, but it’s not easy to do,” said Hale. Ahold and Kroger tried to introduce smaller fresh formats—bfresh and Main & Vine, respectively, and closed them down. Publix plans to open a small-format store focused on organics to compete with Sprouts and Whole Foods. But none of the big supermarkets have really had much success in terms of rolling out a small format to compete with c-stores, he said.
3. The E-Commerce Threat
E-commerce has seen about a $316 billion increase in sales since 2007, Hale said. Total U.S. retail e-commerce sales for fourth-quarter 2017 was $119.08 billion, up 16.9% from the prior year’s $101.88 billion, compared to 14.4% from 2016 to 2017. That’s 9.1% of total retail sales, up from 8.2% from 2016. “Without question, Amazon is delivering the growth,” said Hale.
But he asked, who will fall prey to e-commerce next? Comparing the “tsunami” of store closings against e-commerce growth, it’s clear which kinds of retailers have suffered the most—specialty retailers, consumer electronics, apparel, books and office supplies.
“It would appear that dollar, convenience and gas would be the least likely to be impacted by e-commerce going forward,” Hale said.
4. Store Closings
While c-stores may be the retail channel least affected by e-commerce directly, there are also indirect effects, he said. Store closings in other channels can have a big influence on traffic.
“You need to think about where you are located and what type of store is closing,” he said. “If it’s a big anchor store that you rely on for traffic at particular locations, then you’ve got to think about what are you going to do with those locations that are no longer going to have traffic anymore. The whole notion of managing store closings has to be top priority in your mind in a world like this, because you’re going to see traffic patterns really change, and you’re going to see sales in some of your stores take a dive just because you’re not getting the same people driving by as they were before.”
5. Modifying the Box Experience
Hale talked about some of the “mind-boggling” things retailers are doing to “modify the box experience” to try to compete with e-commerce. There’s a lot going on to try to enhance the in-store experience:
- Tiffany’s is offering actual Breakfast at Tiffany’s, based on the iconic film.
- Sak’s opened a wellness spa with fitness classes.
- American Eagle is offering free laundry facilities.
- Urban Outfitters is selling pizza.
- Walmart is hosting holiday parties.
- Hy-Vee and Kroger are investing in restaurants and food courts.
- Gelson’s is opening in in alcohol, beer and wine bars.
Hale cited a Wall Street Journal report about consumers “finding love in the frozen-food aisle” as grocery stores become more of a place where people can meet to socialize.
“Think about what’s being invested by these grocery chains to make sure that people have a reason to come to a store, not just to shop, but to socialize,” he said. “How can you take advantage of that in terms of how your formats are evolving? Is there something else you can do either to train your people to be more interactive with shoppers, or do something different in your store to make it so that people do want to come to your store regardless of whether they need gas?”
6. Females Driving Trips
C-stores have always had the lead in terms of more men shop in c-stores than any other channel. But that is changing, said Hale. Women are now almost 50% of the trips to c-stores, still lower than other channels, but is may be an opportunity for c-stores to invest in formats that might attract females.
“I was pleasantly surprised to see 7-Eleven investing in a private-label line of cosmetics,” he said. “It’s a category that’s really important to women. It’s a category that’s really important to drug stores, and so is there an opportunity for you to think about how you might tweak your assortment depending on how close you might be to Rite Aid store that’s going to close down—600 Rite Aid stores are going to close down in the next 18 months, so there’s an opportunity if you’re around those stores to think about how you recapture some of those trips that are going to be lost to them.”
7. Door to Car, Door to Door, Door to Fridge
Amazon may not be a big worry for c-stores as much as competitive foodservice retailers like McDonald’s, Taco Bell or KFC if they are going to be offering online ordering and delivery direct to consumers, according to Hale.
“A real race that you have to be concerned with is this whole new move from door to car to door to door to inside a home or inside a fridge,” he said. “Amazon is testing ways to get right inside your home and deliver products with its Amazon Key. Walmart is testing the fact that you can order online and have somebody get into your home and put products away in your refrigerator.”
Both are opening or expanding grocery pickup sites, and small grocers are also experimenting with online ordering and pickup. And grocery delivery services such as instacart and Shipt are catching on.
And today, while it’s still very much a niche business, there is also now an abundance of meal-kit options such as Blue Apron, Hello Fresh, and plated. Amazon Go sells Amazon Meal Kits. Hale is not so bullish that these are going to be a big deal, at least for c-stores, because about a quarter of the people who buy these meal kits are gourmet cooks—not a big convenience channel demographic.
More concerning to him is home delivery of meals by the likes of Grubhub and UberEats. A “big battle” is coming now with fast-food chains such as McDonald’s, KFC and Taco Bell investing in this $100 billion delivery market. There’s a lot of activity going on in this space, said Hale.
8. Strange Bedfellows
“We’re in a whole new game when it comes to merger and acquisition activity today,” said Hale. This activity is going to change the way retail works. He calls it “strange bedfellows.”
“Who would have thought that Target would have bought Shipt. Who would have thought that Campbell’s Soup would have bought a snack company, Snyder’s-Lance,” he said. “The fact that Albertson’s merges with Rite Aid. You’ve got CVS and Walmart talking with health insurance companies to create new complete business models.”
Hale said c-store retailers need to think about getting into and acquiring new businesses that may not have anything to do with c-stores, or that can complement existing c-store formats.
Greg Lindenberg is Editor, CSP Magazine and CSP Daily News.