General Merchandise Overview 2013

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Opening the Loop

Consumers who do their banking through general purpose reloadable (GPR) prepaid cards increasingly are starting to recognize the growing availability of these financial products in convenience stores, says Tim Richardson, vice president of financial services for Atlanta-based InComm.

“The reloadable or GPR category has really taken off and evolved to be a dominant player within the convenience-store space,” he says, citing the growth of prepaid options such as Net Spend, Green Dot, Paypal GPR and InComm’s MyVanilla.

Mercator Advisory Group forecasts the market for open-loop cards to grow by 48% from 2011 to 2014. Users are expected to load $281.7 billion onto GPR cards this year and another $353.8 billion in 2014.

“It’s not inconceivable there will be more of these cards that try and get into convenience stores, because it’s a broad channel, “says Ben Jackson, a senior analyst for the Maynard, Mass.-based group. Retailers generally can earn a commission based on the amount loaded onto the card, but c-stores also benefit by offering reloads.

“That brings in future income because usually the convenience store gets some portion of the reload fee,” Jackson says. “It also is, of course, another visit to the store, and very few people walk in without buying something else.”

The Mobile Wallet

The transformation of smart phones into mobile wallets is enabling retailers to reach consumers in ways that go beyond coupons or loyalty-program offers.

For example, Framingham, Mass.-based Cumberland Farms offers an app that lets customers pay at the pump using their mobile phone and their PayPal account.

Allen Preslar, vice president of national convenience forInComm, points to the prospect of retailers using mobile technology to sell directly to customers no matter where they are. Retailers could make it possible, for example, for customers to purchase gift cards on their smart phones and sweeten the deal with loyalty points. “If you’re going to spend $50 on an Applebee’s card or an Xbox card, you can have instant gratification and earn loyalty points without getting out of your house,” Preslar says.

Jackson of Mercator believes many retailers will make decisions about accepting payment from bar codes on smart phones as they replace aging POS systems: “As they upgrade systems and make changes at point of sale they need to think about, ‘Can I add the ability to scan a bar code off a phone and make payment? Can I give somebody the ability to tap their phone and make a payment?’ ”

Closing the Loop

While the performance of closed-loop cards in the coming months is expected to be mixed, the growth of no-contract wireless could create opportunities for retailers through sales of phone cards and prepaid phones, Jackson of Mercator says. C-store operators also could offer no-card phone top-ups, in which a customer could pay cash and add money to their wireless account at the c-store register.

When it comes to gift cards, however, some retailers are feeling frustrated, Jackson says. They might not have been able to attract the most popular cards and find the others not worth their time.

The category-management basic—know your customer—is critical. “If I have a c-store at a highway rest stop, people probably aren’t coming there to buy a gift card,” he says. “But if I have a c-store on the ground floor of an apartment building in the Lincoln Park neighborhood of Chicago, somebody might grab a gift card there.”

Younger c-store customers tend to seek out digital-content gift cards, such as iTunes or game cards, because they lack credit cards to purchase movies or play games online.

For Good Health

While the OTC medication segment was virtually flat in 2012, it got its biggest boost from vitamin and supplement-based products, says Tom LaManna, vice president of merchandising services for Convenience Valet, Melrose Park, Ill.

Immune-support products, such as Emergent-C and Airborne, are proving good bets for retailers. “With the economy the way it is, it makes sense that people are going to try and self-medicate more in a positive way than to go to a doctor and pay the deductible or out-of-pocket expense,” LaManna says.

Products aimed at weight training and fitness fans, such as the fruit-based protein shot Protein to Go, also offer c-stores the chance to tap into a growing niche, LaManna says.

Energy Shoots a BlankOver the past year,the rate of growth for energy shots has slowed dramatically. According to figures from SymphonyIRI, c-store sales of energy shots fell 1.1% in the 52 weeks ending Dec. 30, 2012, with units off 2.1%, after years of double-digit growth. Nielsen shows dollars up one-tenth of a percent, with units down more than 2% in the 52 weeks ending Dec. 29, 2012.

A January 2013 report from Packaged Facts says the energy shot category “comprises a narrow scope of products that cater to a limited demographic of infrequent users.” For the category to reach growth rates comparable to energy drinks, “makers and marketers must actively pursue new consumers and increase replenishment cycles,” it says, suggesting targeting more mature audiences with promotional efforts and brand positioning.

Coughing Up Sales

Sales of cough, cold and allergy medications were down inc-stores last year, primarily due to ongoing manufacturer shortages. But Beth Noteman of Lil’ Drugstore Products, Cedar Rapids, Iowa, sees new opportunities for the HBC category as products are expected to begin returning to store shelves.

“Based on our interaction with a number of manufacturers, we do see some of the manufacturing shortfalls lessening as we go into 2013 and ... greatly reduced as we go into 2014,” she says. Whether the category is helped or hindered will depend on when products return, Noteman says. Will cough and cold, for example, be back before fall?

Convenience Valet’s solution, LaManna says, has been to find new brand-name replacement items to fill in the gaps. “It’s more about the breadth than the depth” in c-stores, he says.

But Noteman says private-label products have been profitable substitutes in the absence of top branded alternatives. And certain generic products, such as sinus and cold remedies, have been successful when paired with equivalent national brands.

Retailers are able to offer customers better value while pulling in greater profits with the private-label products, she says. New midsize OTC medications in both brand and private label also hold the potential for up selling from trial size.

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