As the world moves through COVID, people are faced with the consequences of and opportunities afforded by living with COVID. There are signs of the pandemic receding in some markets, yet it is certain that the world will continue to experience recurrences over the next several years. Reinventing process and ways of working to support the new normal is on every retailer and supplier’s agenda, however convenience retailers and their supplier partners have a massive opportunity to step up during these uncertain times.
Convenience: Well Positioned for the One-Stop Shopping Experience
Convenience stores typically rely on small footprints with locations close to where people live both in urban and rural settings, lending the channel to consumer patterns brought on by COVID-imposed sheltering in place and social distancing regulations. Since the pandemic will persist, current consumer patterns will likely linger with it. This means that consumers will continue to stay close to home, tending toward fewer trips with larger baskets when they venture out to their favourite haunts for groceries and other essentials. A weekly NACS (National Association of Convenience Stores) and marketing analytics firm, PDI study on consumer basket and trip counts shows purchase sizes are up 20%, while trips are down 12% as of mid-July in the U.S. Additionally, consumers will be on the lookout for deals and impulse purchases to make the day-to-day more special and less humdrum, and they will continue to avoid crowds to minimize health risks. Given that the convenience channel offers speed of service, fast ins and outs, extended hours of operation, grab and go foodservice and other quick serve transactions, it provides the one-stop-shop that people are looking for and well positions the convenience channel for success in a post-COVID world.
Looking back to November 2019. Nielsen forecast that the U.S. convenience channel would be the fastest growing offline channel in the coming years. Currently a 3 trillion-dollar industry worldwide, its U.S. base consists of 153,000 units across the country as of December 31, 2019 and makes up over 35% of the U.S. brick and mortar retail universe (as tracked by Nielsen). Other markets have also seen channel growth as people globally were on the move either travelling long distances, commuting to and from work, or running out for a quick trip to refuel or restock their pantries.
Not surprisingly, COVID impacted the convenience industry with a drastic decrease in commuter/traveller footfall negatively impacting fuel purchases and foodservice. However, as other channels of trade saw supply chain gaps and out of stocks for essential items, people turned to convenience stores for hard to find items, and alcohol and cigarettes to assuage the stressors of the pandemic. Concurrently, they patronized the local stores that could provide quick service, with fewer patrons, closer to home, especially in rural areas. A NACS survey in 2018 indicated that 8 in 10 (86%) of all consumers indicate they have a convenience store within 10 miles of their home.
As COVID has progressed, some markets have seen negative effects in the convenience segment while others have seen surges in convenience store traffic and revenue. In China, convenience stores performed well especially in their largest cities according to McKinsey, which reported a 68% increase in convenience store sales during COVID and a 37% increase post COVID. The UK’s largest convenience operator, Co-op, posted a 30% YOY sales increase according to Kantar. In Australia, convenience store sales remained flat. Overall, areas less impacted by COVID saw strong sales, while others declined and impulse purchases such as ice cream showed stellar results. Mexico’s Femsa conglomerate (gas and Oxxo convenience stores) posted a 2nd quarter net loss of 509 million dollars due to steep declines in their fuel (-49%) and convenience stores (-8%) revenues due to COVID-related lock downs.
While the outlook for the future is uncertain, the convenience channel is in a pivotal position for a post-COVID world, but retailers will need to work closely with their suppliers to create shopping experiences that stand up to current consumer demands as well as protect themselves against losses driven by fuel and foodservice declines. The consumer has changed during COVID and convenience retailers and their supplier partners must maneuver the course with them. Important in this journey is to keep shoppers coming back by adapting to an online environment. Integrating and personalizing the shopper experience, adding new products and offerings that lean into consumer preferences post-COVID, and innovating space to maintain agility and flexibility as markets move forward will be critical. Some of the ways convenience retailers globally are stepping up include:
1. Accelerating Online and Digital Adaptation
As in other retail channels, the onset of COVID has forced convenience stores to adapt and innovate in online and digital. Many convenience retailers had already been working to perfect their mobile ordering and delivery platforms pre-COVID but shifts in consumer needs meant a departure from legacy systems to innovate in a new dimension using sophisticated technology to upgrade and personalize the shopping experience. Aside from consumer demands, convenience retailers have quickly seen bottom line benefits to their e-commerce plays. In a recent NACS publication, Art Sebastian, Vice President, Digital Experience, Marketing, Loyalty, E-commerce and Customer Insights & Analytics at Casey’s General Stores reports, “We’re already seeing a 3 and a ½ minute savings in labour from digital orders [compared to orders taken in person or over the phone], thanks to our new e-commerce platform”. Casey’s, RaceTrac, Kum&Go, QuickTrip and others have accelerated their use of mobile apps to curate the shopping, curbside/on-lot pick-up or delivery experience of their choice.
Delivering non-food service items (e.g. essential grocery items and meal kits) and establishing delivery partners to support the spike in delivery demand means adding new levels of service (e.g. curbside and contactless order pick-up) and technology to support them. “C-stores responded aggressively [during COVID], rolling out programs faster than planned,” said Eric Dzwonczyk, Managing Director at AlixPartners, a global consulting firm in a CS News article. Beyond the customer benefits of safety and speed, convenience retailers also see that these services provide a competitive advantage. In an interview with NACS Magazine, Mario Spina, owner and CEO of the Chicago area’s PRIDE stores, agrees: “For a company like mine, curbside pickup gives me an advantage over groceries, as I can offer complete meals from my Urban Counter restaurants; beer, wine and spirits; and typical c-store merchandise—a true one-stop shop.”
In a digital first for convenience stores, Alimentation Couche-Tard Inc. tests autonomous checkout. Like Amazon Go retail outlets, Couche Tard is retrofitting an existing Circle K unit in Arizona with technology that will allow consumers to walk-in, pick up items and leave the store without having to check out with a store cashier or at a payment kiosk. The unique benefit here is that it does not require a lengthy store closing or change in store layout, as the refit typically happens overnight. “In light of COVID, this is the kind of experience people will like even more,” says Magnus Tägtström, Global Head of Digital Innovation at Circle K’s parent company, Alimentation Couche-Tard in an interview with CS News. “If you don’t want to, you don’t have to interact with anyone. You could just walk in, grab what you want, and walk out. That resonated very much with social distancing and a low-touch environment.”
The last mile focus and entrance of third-party delivery companies, like DoorDash and UberEats in the U.S. and Canada are also continuing to raise the complexity of the industry as they dip their own toes in the convenience realm around the world. DoorDash has launched digital convenience stores called DashMarts in several U.S. markets. They aspire to leverage their service to bring thousands of grocery, convenience and restaurant offerings direct to consumers’ doors, using their online platform to facilitate one-stop shopping from consumers’ favourite retailers all in one place. Swiggy, another food delivery app in India has also set up virtual convenience stores in multiple cities.
2. Focusing on Shopper Loyalty
Digital technology and integrated shopping experiences are synonymous with data collection which will enable convenience retail to be more intentional about collecting information and curating the shopping experiences to reflect their customers’ preferences. Loyalty programs in convenience are old news. However, integration of digital marketing tools and retailer data to better understand the consumer have become more important than ever since COVID’s arrival. Marketing efforts have and will continue to be utilized as a communication medium for convenience retailers as they broadcast and educate consumers on the changes they are making to strengthen the one-stop-shop experience. This will also be an important tool in raising the awareness of new product offerings such as larger pack sizes, meal options and other take-out alternatives for families who will spend more of their wallet to dine at home instead of out.
3. Introducing Innovation in Store Design and Leveraging Agility with Small Format Stores
Leveraging smaller formats and designs that facilitate fast and simple service flow are key to agile growth in the convenience store arena. Innovative formats are in the works around the world as convenience operators retool to win back lost share, profits, and consumer loyalty post-COVID. These also address the need for social distancing and contactless transactions to manage shopper health and safety concerns. The following are examples of innovations in action.
Japan based Lawson introduces a prefabricated convenience store in China. Two store layouts offer flexibility and can be moved to adapt to changing consumer traffic patterns or market dynamics.
Wawa (U.S.) builds their first drive-thru and curb-side-pick-up only store, as a way of offering increased convenience and additional service options to meet consumer demands without leaving their car.
JD in China launches a convenience store mini shop. Featuring a smaller footprint than a regular convenience store, a mini shop is 15 square meters and has a low cost of entry for potential business owners. Consumers can enter the unit to purchase ready-to-eat food, beverages, and stationery, then proceed to an automated checkout that supports face recognition technology.
Spar’s floating 1-person convenience store is touring part of the Netherlands. This novel customer experience is a play to day-trippers and holiday makers by bringing food and supplies directly to them via the waterways. The docked convenience store allows entry of one consumer at a time, promoting social distancing measures and contactless checkout.
As adaptation in the convenience store channel continues, retailers will need to work with suppliers to get it right. Our 2020 Advantage ReportTM USA engagement program among nearly 200 CPG manufacturers highlights what suppliers are looking for from retailers in post-pandemic partnerships. The convenience retailers that come to the table with these attributes will be sought after partners as the race continues for share and profits. In the words of one U.S. supplier, “Everybody is expecting things to continuously change. Change is constant, but change now, as far as our business is concerned, happens daily, weekly, and monthly. While we need to plan our business, we need to be nimble. The companies and retailers who can do that the best, are going to be the most successful. Internally, we are preparing to be nimble and to respond to future flare-ups and shutdowns, which we assume will happen, and which drive our business. The expectation change is that there will be more rapid change. Our expectation of our partners is that they will continue to evolve and be nimble.”
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