“Other channels are messing with your business.”This somewhat ominous warning was offered by Nielsen vice president of consumer and shopper insights Todd Hale to the c-store retailers attending his “Understanding the Convenience Shopper” general session. Grocery stores are experimenting with gas rewards programs, dollar stores are testing out tobacco and more drug stores are getting into the foodservice business.
“How do you compete with (other) retailers in terms of their assortment, and what’s going on inside of their box in terms of how they connect with shoppers today and in the future?” Hale said.
To help address this concern, Hale went through some retail “hot buttons” he has come up with based on years of Nielsen research, saying many of these hot-button issues provide unexpected opportunities for c-store operators to compete with outside channels and grow their business.
Price and Value
“Low prices still matter a lot to shoppers these days,” Hale said. “Median income has fallen for nine of the past 12 years. It’s tougher for people to buy stuff because they’re not making as much money. The c-store channelis especially experiencing this pinch because it skews toward low-income shoppers.”
To appeal to the price- and value-conscious shopper, other channels have instituted well-advertised price freezes (as retailers such as Shop Riteand Kroger have done) and engaged in public price wars (championed by Walmart). And of course, there’s the tactic that poses the most direct threat to the c-store industry: gas rewards programs.
“Thirty-two percent of households now buy groceries at retailers because of how much money they save on gasoline,” said Hale, pointing out that such programs are still successful despite the fact that most grocery gas stations are not as nice or convenient as traditional c-store pumps. “They’re getting a lot ofactivity from people because of how much money they save. We haven’t seen the kind of increase toward loyalty-card programs as much as we have here.”
And, according to Hale, the competition for gas is only going to get worse—meaning c-store operators will have to rethink their business strategy.
“The fact that more fuel-efficient cars means you’re going to get less trips is another issue you’re going to have to think about: how to you compete more effectively in a world where your gasoline may not be as strong as it’s been historically,” he said.
Private Brands
Adding a private-label line may seem tobe a natural way to appeal to consumers looking for price and value. However, Hale warned that such products haven’t increased as much as one might expect given the economic climate.
“When you look at overall growth in the last three years, private label look spretty impressive: about $110 billion in sales and a growth rate of 16%,” he said.“But brands during this time were at $524 billion and grew by 7%. The fact is, at a time of economic downturn—when people had trouble finding money to spend on products and services—private-label share only grew by 1 point.”
Still, with one out of every five dollars in supermarkets coming from a private-label purchase, there clearly is some demand. Hale believes it comes down to the dedication and diligence of the retailers.
“There are some retailers out there that are very good atthis, but there are a lot of other retailers that thought a ‘Build it and they will come’strategy would work,” said Hale. “You’ve got to really add a lot of science to what you do with private label. You’ve got to have the right items, the right assortment,the right price and good quality—because [a poor product] will turn shoppers away.”
Small-Box Growth
Bigger isn’t always better when it comes to store sizes, at least as far as Nielsen’s numbers are concerned.
“Over the last five years, there have been 20 retailers who have added 13,400 new stores,” Hale said. “A third of that growth came from c-stores. … If you look at that list, 10 of the top 20 were convenience-store operators. You guys have operated on a very fast track when it comes to expanding store count.”
The fact that the number of c-stores and other small-format retail locations has increased even in a weak economy has led even large-box retailers such as Target and Walmart to consider small-box businesses.
“When you look at Walmart’s small-box formats, they’re dabbling in a space where I don’t think they know how to compete with you guys,” Hale said of Walmart’s grocery and c-store combination,Walmart Express. “They’ve tried small box before, and I think it’s going to be tough for them to make it happen.”
Food Fight
Whether it’s in small- or large-format stores, convenience stores or the drug channel, foodservice has firmly established itself as a retail hot topic.
“An amazing occurrence is happening today around food and the fight overfood,” said Hale. “You’re messing with existing food retailers and non-food retailers are now messing with you, when you think about all the fresh products that you can find in drug stores and dollar stores. You’ve even got clothing manufacturers like Tommy Bahama opening up restaurants.”
Nielsen’s data shows that sales of fresh prepared food are growing across all channels, particularly in grocery. Still, Hale has been impressed with c-store retailers such as Nice N Easy, who have used the consumer interested in prepared-food offerings to help grow the company’s private-label business.
Still, there’s one hot button that foodservice does not relate to: value. Hale warned that value ads do not work with fresh food; in fact, Nielsen’s research shows consumers rarely remember what was advertised when numbers are involved. Humor is the device that most sticks in consumers minds when it comes to food ads. “The connection with food is interesting,” Hale said. “It does help to build a nice equity with shoppers if you can do it well.”
Shoppers Who Matter
Per Nielsen’s numbers, it’s not millennials that retailers need to connect with; the younger generation spends less and makes fewer shopping trips than ever before. Hale believes the two groups who matter most to retailers are also often the most underrepresented groups in terms of advertising:older and multicultural shoppers. “You can’t wait any longer to realizethat multicultural populations have to be a big part of what you do, because that’s where the growth is,” he said. “In certain markets, multicultural populations are already the majority. It’s not just in 2043—it’s now.”
Bilingual packages are one way to appeal to multicultural consumers.Advertising is another: Research shows multicultural shoppers respond well to ads featuring their peers, Hale said. In fact,so do baby boomers, despite the fact that they’re also underrepresented in the current environment.
“The boomer market is huge; we spend a lot of money because we have a lot of money,” said Hale. “As a matter of fact, we account for about 50% of spending that goes on in this country. Yet we only get about 10% to 15% of the advertising focus against us. Something is wrong there.”
Of course, it’s not just advertising that draws boomers in. Hale suggested health-conscious convenient alternatives, such as portion-controlled food offerings, which boomers are willing to pay a premium for.
“Opportunities for you to think about: how you deal with the age of shoppers in your stores and how you go after them,” Hale said. “There are some big spenders out there.”
Convenient Solutions
“In terms on convenient consumer solutions, look at what Amazon has done in a year,” said Hale. “They grew their online global business from $48 billion to $61 billion in one year. They’re 10 times bigger than their next 10 closest competitors.They’re 10 times bigger than Walmart. They’re a real force to be reckoned with. ”While Amazon may not seem like a real threat to the c-store industry, the popularity of online shopping could ultimately have an effect on the channel, Hale said.“I can see a day when supermarkets are going to see their center store shrink even more because more and more people are going to buy those products online,” said Hale, predicting grocery stores will put more of a priority on foodservice to make up for the losses. “That’s going to be competition for you, long term.”
Health and Wellness
Healthy options may seem an odd fit forthe c-store industry. And, at first glance, Nielsen’s research seems to support such thinking.
“We have a segmentation scheme we use at Nielsen that comes from the National Marketing Institute that segments consumers into how engaged they are with health and wellness,” said Hale. “It ranges from the ‘well beings,’ who arevery engaged in making sure what goes in them is good for them and are also very green in how they live, to the ‘eat drink and be merries,’ who really couldn’t careless about being healthy.”
Not surprisingly, it’s those on the less conscious side of this health-and-wellness spectrum that tend to shop at convenience stores, but Hale believes the “well beings”could present a very profitable opportunity for the channel.
“The people who are engaged in health and wellness spend a lot more and make a lot more trips,” he said. “They’re veryimportant but tend to make more trips togrocery and club.”
The growing market of health-conscious consumers has driven retailers such as 7-Eleven to commit to offering healthier, fresher fare at its retail locations. This kind of commitment won’t work for all retailers; it’s a matter of looking at a chain’s shoppers to determine what kind of health-and-wellness mix will best drive profits in their locations.
“You have some flexibility here,” Hale said. “Healthy options are something you can win with, but you need to be judicious about where and how you do it.”
Experimental Retailing
“Here’s an area where I think you guys really need to pay attention,” said Hale, introducing his final retail hot button. “I call it cool-factor retailing.”
By the very nature of its name, experimental retailing varies based on the strengths and market of each retailer. Hale described grocery stores that have embraced “foodie entertainment” in their locations with sports bars, outdoor seating and food sampling. Beer and wine sampling is another way he’s seen retailers experiment with creating a “cool factor” int heir stores—and sales increases have gone along with it.
“With all of these retailers focusing a lot of energy around cool, is there some way you can do that?” Hale asked. “I don’t think you have to go overboard. I think beer caves provide that to some extent, but is there a way to provide more coolness to what your stores look and feel like?”
With the competitive threat of grocery, drug and dollar continuing to increase, it’s a question worth asking.
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