The Supply Side: Convenience store channel reports modest growth in 2018

by Kim Souza (ksouza@talkbusiness.net) 197 views 

Convenience stores (c-stores) have long been viewed as quick-trip destinations where operators made a living selling 99-cent bags of chips on penny margins and depending on fuel sales to drive the in-store sales.

But times are changing, and there are convenience store chains separating from the pack, according to industry experts with the National Association of Convenience Stores (NACS). As stores face revenue challenges with fewer tobacco sales and lower fuel prices, they have ramped up their foodservice offerings and those have higher margins. NACS said this is growing in popularity among consumers on the go.

NACS said the top operators have devoted more store space to either prepared food on-site or fresh sandwiches and salads delivered from commissaries or wholesalers. Inside c-store sales grew 2.2% in 2018 to hit $242.2 billion, a modest increase compared with a nearly 13.2% jump in fuel sales, inflated by higher gasoline prices.

A separate report from NACS and the Coca-Cola Retailing Research Council (CCRRC) surveyed thousands of adult consumers to understand where c-stores rank in consumers’ food and shopping rotation.

The report classified the consumers into three separate groups with their own shopping behaviors. The c-store loyalists are those who shop convenience stores regularly, seeking food and drink as the primary trip driver. In this cohort, the report found 71% of loyalists each have their favorite c-store for these trips.

The Millennial group consisted of urban, diverse, tech-savvy, on-the-go consumers seeking variety and healthier options. In this cohort, 46% were single and 68% had kids. The group averaged 2.2 different needs during their last c-store visit, meaning they didn’t go for just one thing.

Busy parents comprised the third group, and these consumers balance work, kids’ activities and their own needs with c-store visits. More than half (55%) buy three or more items per trip. This group is also twice as likely as non-parents to be loyal to the c-store.

REASONS FOR CONVENIENCE
The report said all of the c-store shoppers prioritized speed, ease and accessibility when deciding where they will shop, which underscores how c-stores can remain relevant — by delivering in all three of those areas.

The report also outlined several reasons shoppers said they choose c-stores.

• 80% are looking for food and beverage consumption on the go.

• 80% of c-store trips are en route to and from other places.

• 28% of shoppers visit c-stores for speed of getting in and out.

• 73% of food choices are made within an hour of eating.

• 37% said they stop at a c-store close to where they live or work.

• 81% said they want a balance of traditional and fresh/healthy foods.

• 71% said they would use made-to-order deli service at c-stores.

The report said consumers have their own ideas about what convenience means to them. With busy consumers, there are more trips eaten on the go, and snacks are assuming more of a nutritional role in their diets. While beverages and “treat” snacks remain important, consumers also seek fresh, high-quality and portable solutions to fit their busy schedules, the report notes.

“Despite the advantage of digital devices and self-check services, many consumers lament losing the loss of human interaction when shopping,” the report states. “C-stores that execute on quick and unobtrusive service while providing a pleasant greeting and local engagement stand apart as providing a more meaningful experience.”

The report also found 72% of parents said they would use a seating area if available at a convenience store. Among Millennials, 75% would use digital pre-ordering if the c-store provided that service.

BEVERAGE BOOM
Beverages are the key driver of c-store trips and are also “stickiness” for loyalty to certain stores. One in four c-store trips are driven by thirst, and 36% of consumers buy one or two items to drink when they go to c-stores. Overall, consumers consistently rank c-stores as a “good place” for something to drink.

“I get single beverages [soda and energy drinks] at c-stores. It would probably save us money at a club, but a case of energy drinks at a club would be $50,” according to Jeff, a 27-year-old respondent in the CCRRC survey report.

Andrew, a 30-year-old respondent, said he frequents QuikTrip for his beverage purchases on the go because he likes the variety of choices. C-store loyalist Ed, who is 50, is a Walmart convenience store fan because of its any size 88-cent soda. He said the value can’t be beaten, and it’s a daily stop for him.

Brianna, a 24-year-old Millennial respondent, frequents c-stores for gum, coffee, water, fuel and sometimes beer. While she tries to eat healthy, she also enjoys a package of Flamin’ Hot Cheetos on occasion and knows she can pick up a small package at her c-store.

WALMART CONVENIENCE PLAY
In mid-March 2014, Walmart opened its first true convenience store on Walton Boulevard in Bentonville, a few blocks away from Walmart Store No. 100 near the retail giant’s home office. The store was more expensive and larger than it needed to be, according to Walmart executives who have since scaled down the format.

Walmart’s continued interest in c-stores is to garner some of the $242 billion in sales rung up by convenience stores in 2018. In 2017, Walmart first piloted a smaller convenience store format at Store No. 5260 in Rogers. The scaled-down model is 2,500 square feet and offers a small selection of snacks, candy, hot food, soft-serve ice cream and an assortment of convenience merchandise.

Walmart has slowly been adding the smaller convenience stores in the parking lots of Supercenters and Neighborhood Markets. Walmart does not separate sales from those locations because they are tied to the adjacent stores. Last year, Walmart added four additional c-stores in the Dallas metro.

This spring, Walmart undercut prices against competitors for fountain drinks offering any size for only 88 cents. That compares with $1 at McDonald’s and $1 at Kum & Go with a rewards card. Walmart also moved away from the Styrofoam cups used for fountain drinks in favor of more eco-friendly paper cups.

Walmart began adding beverage fountains in its new Neighborhood Market formats three years ago. Several stores in Northwest Arkansas have beverage stations inside the grocery store as well as a convenience store in the parking lot. Consumers can check themselves out at each of the beverage bars, which include coffee, tea, soda and milkshakes.

NACS said Walmart still appears to be tiptoeing in the convenience stores space, but it would be a mistake for any competitor to underestimate a company that has rung up a long and successful track record as the world’s largest retailer.

Editor’s note: The Supply Side section of Talk Business & Politics focuses on the companies, organizations, issues and individuals engaged in providing products and services to retailers. The Supply Side is managed by Talk Business & Politics and sponsored by Propak Logistics.

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