WASHINGTON -- Year after year, new ideas come along that spur innovation across the convenience industry. Even a few years ago, who could have predicted Amazon’s plans to expand its brick-and-mortar presence with convenience stores? Which chain will add fresh foodservice next? Which will test the waters with mobile payments at the pump? And how will significant M&A deals continue to change the industry landscape?
According to Applied Predictive Technologies (APT), Washington, retail industry leaders indicate that five key trends will shape the convenience industry in 2017.
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1. Leaders investing more in their people
HR took center stage at the 2016 NACS Show, with educational sessions covering onboarding, company culture, training, career progression and more. This was a logical focus as operators continue to seek new strategies to attract and retain top talent. Some companies are investing in new training programs and equipping employees with tools to boost productivity, while others—such as Rutter’s, Sheetz and Redner’s Markets—have proactively increased wages.
When implemented correctly, these types of initiatives can effectively reduce turnover and increase employee and customer satisfaction. Yet for these programs to be sustainable, they must prove to be profitable. The most effective way to determine which programs truly affect the bottom line is through in-market experimentation—testing the strategy in some stores or markets and comparing their performance to that of similar stores or markets where the program was not implemented.
With this approach, executives can glean the insights necessary to design programs benefiting employees, customers and the company’s bottom line.
2. Convenience stores becoming convenience destinations
From adding growler stations to introducing self-service lockers, convenience retailers are increasingly challenging the notion that customers should visit their stores only to fuel up and grab snacks.
Some convenience stores are emulating restaurants, adding outdoor seating areas and free Wi-Fi or drive-thru windows for convenient pickup. Others are investing in services to drive customers into the store. For example, self-service Amazon Lockers and USPS "goposts" have been popping up in numerous 7-Eleven and QuikTrip locations, while other operators look to add at-the-pump food ordering screens.
With these offerings come questions regarding their implications.
Will introducing a made-to-order (MTO) foodservice concept drive enough incremental transactions and add-on purchases to cover the associated costs? Which departments should retailers downsize to create space for self-service lockers? Which customers respond best to at-the-pump ordering screens?
Answering these questions accurately requires operators to first pilot each concept in a subset of representative locations, then closely monitor their performance to ascertain whether the initiative warrants further investment, based on incremental traffic and sales.
3. Convenience betting on beverages
Convenience stores are placing their bets on beverages, using methods such as making coffee more customizable, offering curated craft-beer selections and introducing fresh-pressed juices and smoothies. For example, SuperAmerica and Kwik Trip have introduced cold-brew coffee, while Sheetz has spiced up its coffee menu with new flavors, including creme brulee. Others, such as Rutter’s, include alcohol options such as beer caves and offer a wide variety of craft beers and ciders.
Why? Because drink programs can be both traffic drivers and basket builders, incentivizing customers to buy additional items once inside the store. Some stores bundle food and drink as combo meals, prominently featuring these deals on in-store signage, while other shift products commonly paired with drinks such as coffee closer to the coffee bar to encourage impulse purchases.
4. Brands doubling down on digital
Last year, almost a quarter of retailers considered new mobile apps a priority, according to a survey of leading grocery, convenience, dollar and drug store retailers, and we expect that number to grow in 2017.
Pilot Flying J recently made headlines for its enhanced mobile app, which allows drivers to choose a fuel lane based on wait time estimates and receive a mobile activation code for cardless fueling at the pump. Others stores are exploring text blasts, social media, e-mail offers and digital ads.
Despite the growth in digital innovation, traditional targeted promotions will likely remain the most commonly tested digital initiative in 2017; however, convenience stores aiming to drive traffic with promotions should remember that the most popular offer is not always the best offer. Evaluating the success of a promotion solely on redemption rates can be risky; as redemption rates increase, retailers risk losing money by subsidizing sales that would have taken place anyway.
5. Testing the waters with alternative fuels
Today’s cars run on more fuel types than ever before; some of the latest options are E85, E15, electricity, and in California, even hydrogen. Yet, to date, convenience retailers have been slow to add these new fuels to the mix, partly because expanding fuel offerings can be costly. The process often requires repurposing existing pumps or adding new pumps and canopies. Beyond the upfront capital investment, the construction period associated with these changes can drive even loyal customers to visit nearby competitors, causing sales disruption and potentially long-term customer loss.
Some convenience stores, however, have accepted that risk, implementing a wider variety of fuel offerings at select locations. Sheetz has added E15 and E85 to some Virginia locations, and it is in talks with Tesla to add chargers for electric vehicles (EVs) in the near future. Other chains, including RaceTrac and Mapco, have also begun offering E15.
Before investing in upgraded pumps across their networks, executives should first run small in-market tests to determine which, if any, of these fueling options are right for them. By first trying new fuel offerings in select locations, retailers can let consumers vote with their wallet on the importance of these offerings and design a more profitable strategy accordingly.
As these trends shape the industry, convenience retailers must be able to innovate quickly; however, initiating any proposed change without knowing how it will play out can lead to significant erosion of a company’s bottom line and reputation.
To minimize the likelihood of incurring unnecessary losses or tarnishing their brand, retailers should test each new program on a smaller scale to determine its true incremental effects. Executives can then confidently allocate funds to ideas that work and cut investments in those that do not.