ROSEMONT, Ill. — E-commerce is a threat affecting all physical retail channels, but it is not the only competing channel threatening convenience stores. Todd Hale, former senior vice president of consumer and shopper insights for Nielsen and now principal of Todd Hale LLC, Cincinnati, offered a channel expert’s overview of the 2018 retail landscape, and he encouraged attendees of the 2019 NACS State of the Industry Summit in Rosemont, Ill., to find opportunities among the threats.
“What does the future look like?” Hale asked. “What’s the vulnerability scale of the retail industry in terms of further e-commerce growth?”
He pointed out how rapidly e-commerce has grown, adding $377 billion in sales since 2007. The retail formats that have suffered because of this include consumer electronics, apparel, department stores, toys, books and other specialty retailers, he said. “As we look to the future, the likelihood of dollar, convenience stores, drug or liquor to be impacted as greatly by e-commerce is a lot less, so feel good about that,” he said. But retail format is no guarantee of success. “There are other things you need to be concerned about in terms of innovation in e-commerce or from retailers outside of traditional brick-and-mortar retail.”
Expansion stalled in 2018 across retail channels, the first time since 2008 that there was a decline in store count, said Hale. “There have been a lot of conversations over the years about how we’re overstored, but clearly e-commerce is having an impact here,” he said. “If you’re not actively managing store closings as much as you’re managing store remodels or new-store openings, you’re missing out on opportunities to invest in your business. … How do you fuel investments into locations that really can drive significantly greater results for you than some of those weaker locations?”
Hale highlighted some recent competitive initiatives by retailers in a variety of channels that, while threatening, might present opportunities for c-store retailers …
5. Dollar General
Dollar General has said that it is working to become a bigger seller of food, Hale said. “There’s a lot more food in their ads. There’s a lot more food in their stores, and fresh food is a big part of it as well.”
Hale also said he was surprised to find how slow Dollar General has been in rolling out its DGX format, which he thinks “is the closest thing to a convenience store as there is.” The chain has only three, but it is planning to add another 10 by the end of 2019, “so they must have figured out that this is a format that they can invest in and drive growth. I would urge you to keep an eye on what they are doing with this format and see what impact it might have on your business,” he said.
Drug chains are all struggling to drive front-of-store sales, according to Hale. Front-of-store sale are a challenge for them and a big opportunity for c-stores, he said. CVS is testing a format that doesn’t have a front end at all—a health clinic that will focus on selling medical equipment and supplies. “If you’re close to a CVS that’s trying to do this, I would urge you to think about how you can take that front-end business away from them,” said Hale.
7. Kroger and Walgreens
In an experiment in Kentucky, Kroger and Walgreens are “strange bedfellows,” said Hale. In 13 Walgreens stores, Kroger is adding a 4,000-square-foot Kroger Express grocery section supplied by Kroger. “I don’t know who’s going to benefit from this, if Walgreens really thinks that they are going to get more trips to their stores because now they have a small grocery store inside of their store, or is Kroger going to benefit by having this additional assortment out in the marketplace? But clearly, it’s an attempt on their part to figure out how they’re going to drive growth, how they can collaborate in a unique way to drive traffic for both of them,” he said.
And is Walgreens getting out of cigarettes? CVS stopped selling cigarettes in 2014. In Gainesville, Fla., Walgreens is now testing stores without tobacco. “If I were in that market, I would be paying very close attention to that to see if there’s an opportunity in terms of what’s going to happen to sales of cigarettes in your stores, and how can you take advantage of this if it gets any broader than what they are doing in this market test,” he said.
8. Whole Foods
Whole Foods and Kroger are adding craft beer and wine bars in some of their stores. “Almost every Saturday afternoon, they’ve got 40 or 50 boomers drinking wine and beer with live music playing,” said Hale. “It has created a lot of excitement in that store. Think about the explosion of craft-beer locations. That’s got to be impacting your beer business. Is there something you can learn from these craft-beer companies to think about what brands you carry in your stores, or selling growlers in your stores? Is there an opportunity for you to serve beer in your stores and create a different atmosphere?”
An area that also should be a concern to retailers is food ordering online, said Hale. Grubhub has partnered with more than 105,000 restaurants in more than 2,000 U.S. cities. Active diners grew by 22% year over year to 17.7 million. And DoorDash has surpassed Grubhub in overall delivery share, he said, estimating that food ordering online is an $8 billion business.
Third-party online delivery services such as Shipt and Instacart have the ability to reach 80 million households quickly, Hale said. “They’ve got a strong reach, and they’ve got a lot of connections with national, regional and local retailers,” he said, suggesting that it might be an opportunity for c-store retailers to partner with these types of services.
11. Pizza Hut
In partnership with Toyota, Pizza Hut has “robot-on-the-go” trucks, said Hale. The truck has robot arms that take a pizza out of the onboard refrigerator, put it in the onboard oven, slice it and box it while on route to a delivery. “An individual store will be able to broaden its reach because the pizza is now going to be hotter by the time it gets to customers farther away from the store,” said Hale. The chain is also experimenting with driverless cars.
FedEx has partnered with Walmart, Walgreens, Target, Pizza Hut and others on robot technology for same-day delivery. Other retailers such as Stop & Shop and Kroger are testing unmanned delivery. “It’s not something you guys need to do, but what is it going to do to your business? The ability to deliver without a body is going to save money,” said Hale.
Amazon has been experimenting with the ability to deliver products to the trunk of a car. Walmart wants to go a step further. It wants to be able to get inside of customers’ homes and fill up their refrigerators and freezers with products. “I can’t imagine having room in my refrigerator for something like this, or the legal issues they might have about something that might go awry with a delivery,” said Hale.
Hale also cited voice-activated buying with Amazon Echo, Google Home or Apple HomePod devices as an opportunity. Google just announced a deal with Walmart to enable voice-activation ordering of Walmart products through Google Home. “We’re going to be able to leverage technology in some very interesting ways,” he said. “What impact is that going to have on your business? Is it something you should invest in?”