2016 SOI: 'Get Your Apps Moving' to Lure Shoppers
Hale details competition, consumers and opportunities for 2016 and beyond
Several years into the economic recovery, retail growth overall has been slow. Really slow, according to Nielsen. Across all U.S. outlets, dollar sales have gone up just 2% over the past three years, with unit sales up 0.2%.
“Total store gains have been less than spectacular,” said Todd Hale, a Nielsen consultant and principal of Todd Hale LLC, Cincinnati, during his general session on shopper trends.
But it’s not all gloom and doom. “There’s clearly growth,” said Hale. “You just have to look for it.”
C-store dollar sales were up 4.1% last year, nearly twice the 2.3% increase seen by the dollar and drug channels.
“This is phenomenal growth relative to the competition,” Hale said.
Part of that growth is due to the sheer number of convenience operators. Hale pointed out that c-stores “dwarf” other channels in terms of store counts and growth, having added 29,560 new stores since 2001 and 7,735 since 2010.
“One suggestion: Spend as much energy managing store closings as store openings. Get rid of the bad apples,” Hale said.
Another reason the channel has done so well is its core product mix. Six of Nielsen’s top 10 growth categories (compared to four years ago) are also part of Nielsen’s top 10 c-store categories: beer and malted beverages, salty snacks, new-age beverages, traditional tobacco, candy and water.
“Convenience is growing faster than other channels because it’s carrying products that are growing,” Hale said.
The channel is doing so well that other channels continue to experiment with “going small.” Grocery chain HEB is adding its ninth full-service convenience store, and Wal-Mart has begun to add smaller convenience stores with gas pumps near its supercenters.
That means as well as the channel is doing, c-store retailers can’t turn their backs on the competition.
Channels to Watch
If any channel comes close to competition with convenience in terms of growth, it’s dollar stores. The channel has added 14,897 locations since 2001 and 6,303 since 2010.
But that activity has ramped up in recent years. From December 2007 to January 2016, 23,827 new retail outlets opened across all channels. Of those stores, 35% were dollar (vs. 33% c-store). (See chart on next page.)
“What matters today is not health and wellness—it’s convenient food at a good price.”
Dollar-channel retailers also topped the 2016 list of total U.S. store counts, with Dollar Tree coming in first at 13,516 locations and Dollar General second at 12,493. (7-Eleven was third with 8,331 stores.)
“Dollar General plans to open a record 900 stores and remodel or relocate about 875 existing locations in 2016,” Hale said. “But it’s upping the total for 2017, forecasting some 1,000 new stores and 900 remodels or relocations.”
While the grocery channel might not compete in terms of store counts—up just 3,055 stores since 2001, and 1,056 since 2010—Hale warned that the channel is definitely competing in innovation and experience.
Specifically, he cited Kroger’s success in private label and a loyalty program, a Winn-Dixie pilot store that “celebrates food” with on-site cooking demonstrations, and Whole Foods’ investment in the adult-beverage experience with on-site beer and wine bars.
“Where grocery will win is their focus on the in-store experience,” said Hale. “This should cause you to lose sleep.”
While acknowledging that the convenience channel is typically focused on a quick in-and-out experience, he encouraged retailers to at least consider investing in parts of the store meant to encourage shoppers to sit and stay.
Healthy, Happy and Diverse
Grocery’s emphasis on heightening the shopping experience speaks to the ever-changing preferences of today’s consumers. Hale warned that retailers shouldn’t have tunnel vision with the “better-for-you” trend.
“What matters today is not health and wellness—it’s good-tasting and convenient food at a good price,” he said. “Indulgence matters.”
It matters especially when you look at the percentage of same-store sales growth over the past year. Domino’s leads the list (up 12%), with companies such as Sonic (up 7%), Denny’s (up 6%), Burger King (up 6%) and Taco Bell (up 5%) also growing sales.
And they are not exactly health-and-wellness operators.
Still, Hale said shoppers today are looking for a balance between wellness and indulgence, pointing out that “Walgreens has it right with ‘happy and healthy.’ ”
This is evident when looking at grocery buying trends, specifically how consumers are “flocking” to the perimeter. All perimeter categories—which include deli prepared foods, deli meat, deli cheese, bakery, vegetables, fruits, fresh seafood and fresh meat—saw increases in dollar sales last year, with every category except fresh meat growing unit sales as well.
“Clearly, the perimeter matters,” Hale said. “It’s very important to millennials.”
Retailers have responded to this increased focus on the perimeter by upping offerings of deli prepared meals and bakery, with Nielsen showing sushi and soup volumes up 11% last year (leading deli prepared options) and pies up 20.8% (leading bakery options).
“A lot of it might not be healthy products,” Hale said of these trends. “But the perception is they’re fresher and therefore better for you.”
Besides focusing on broader shopper preferences, Hale suggested retailers look at opportunities to attract different shopper segments—and no, he wasn’t talking about millennials. “Connect to shoppers that matter,” he said. “While we focus a lot of energy around generations, buying power matters.”
For example, 39% of c-store shoppers come from households making $29,000 or less a year. Given that only 28% of c-store shoppers earn more than $70,000, Hale sees an opportunity for growth.
Likewise, convenience remains the only channel in which men drive more trips than women (54% vs. 46% in 2015). But, as Hale pointed out, females generally spend more, so there’s another opportunity for the channel to grow.
Continued: Who Will be the Winners of 2020?