2016 Cross-Channel SOI: Hijacking Convenience

Cross-channel competitors threaten to redefine your space

Angel Abcede, Senior Editor/Tobacco, CSP

The convenience space is under attack from everything from land-roving robots to airborne drones, and retailers need to retake the wheel before cross-channel competitors redefine the model, according to speakers at the summit.

Amid both the hype and the actual momentum behind retail- and supply-chain-blurring trends, convenience-store operators are watching disruptive business models emerge and weighing their impending relevance, said Billy Milam, president of RaceTrac, Atlanta, who reviewed annualized industry statistics with attendees in the opening general session.

The threats go beyond buzz, with some competitors bringing forth real operational disruption. Pointing to the growth of home-delivery services, Milam said some startups are paying drivers as contractors, bypassing the need to provide benefits. With threats like that, he said, “What’s our competitive advantage?”

The good news is that larger-format retail appears to be struggling. In reviewing sheer populations of brick-and-mortar locations, Milam said the biggest declines have come from mass merchandisers (down 4.0%) and so-called “category killers” such as Home Depot or PetSmart (down 2.7%).

“We’re almost double the [category killers such as] Best Buy and RadioShack,” Milam said. “They’ve been closing stores, so the No. 2 [retail segment] is shrinking.”

“[Dollar stores] are a continuing threat to our industry.”

His main concern was dollar stores. A channel largely composed of major chains, these companies have achieved respectable levels of efficiencies. While they have yet to do damage in the key convenience categories of beer and tobacco, their potential is great.

“They’ve only been selling tobacco three or four years and they have 15% market share,” Milam said. “What if they get better?”

Goodlettsville, Tenn.-based Dollar General has grown its alcohol sales by more than 250%. “They’re a force to be reckoned with,” he said. “We need to consider these guys. They’re a continuing threat to our industry.”

Who’s Aiming at Convenience?

In assessing cross-channel competition, Milam cited a number of trends that could potentially compromise today’s convenience model. They range in physicality and paradigm but appear to be evolving rapidly and are offering many of the same products and services that c-stores do.

  • Discount supermarkets. This format appeals to a value-conscious consumer looking for groceries on a budget. Essen, Germany-based Aldi has 1,300 supermarkets in the United States and 200 more planned. Neckarsulm, Germany-based Lidl has 80 locations set to open this year and 500 more by 2018.
  • Not “Whole Paycheck.” Austin, Texas-based Whole Foods is developing a 365 by Whole Foods concept with less expensive options in an effort to appeal to more value-focused millennials.
  • Ethnicity. Drug stores and other channels are experimenting with bilingual stores, with employees and signage tailored to Hispanic consumers.
  • Home delivery. Whether via an online retailer developing home-delivery networks or pizza chains testing driverless robots, removing the need for people to drive or walk to a store may redefine convenience. A newer development in this vein are services that will go to people’s homes to fill their cars with fuel, Milam said.

Focus on Foodservice

The foodservice category faces its own set of competitive threats. Andy Jones, president and CEO of Sprint Food Stores, Augusta, Ga., said restaurants of all types are aggressively initiating and reacting to trends on everything from flavor profiles to promotional strategies.

Many fast-food restaurants have started to promote “two-for” deals. Others are weaving health cues into their menus and messaging with initiatives such as removing artificial ingredients or using cage-free eggs. Still others are appealing to millennials by creating chic, urban sit-down environments and adding novel ingredients to their menus.

Some restaurants are even trying a c-store staple of offering a variety of condiments for customization. One fast feeder in particular is highlighting its wide range of dipping sauces. “We’ve been doing [it] with coffee for years,” Jones said. “But we can copy from them too.”

While Milam emphasized threats, he did remind c-store retailers of their own strengths: “They don’t have our real estate or the immediacy our format allows.”

Store-Count Comparisons

Trade channel 2014 2015 Unit change Percent change
Convenience stores 152,794 154,195 1,401 0.9%
-Single stores 96,318 97,359 1,041 1.1%
Category killer 90,822 88,413 (2,409) (2.7%)
Liquor store 46,351 46,822 471 1.0%
Drug 41,799 41,967 168 0.4%
Supermarket 50,839 51,055 216 0.4%
Dollar 25,952 27,378 1,426 5.5%
Cigarette outlet 11,270 11,280 10 0.1%
Mass merchandiser 7,113 6,827 (286) (4.0%)
Wholesale club 1,320 1,346 26 2.0%
Kiosk/other 22,303 22,084 (219) (1.0%)
Total retail 450,563 451,367 804 0.2%

Source: Nielsen/TDLinx