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SOI 2019: C-Stores in the Crosshairs

Overlapping categories, frictionless focus lead to more formats in direct competition
Photograph by Francisco Gonzalez

CHICAGO — Whether chasing core categories such as tobacco and beer or making retail more convenient by eliminating the checkout line, cross-channel competitors are putting the heat on c-stores. SOI Summit attendees heard from multiple speakers about the threat of channel blurring, with an array of retailers both invading and reinventing the convenience model.

For c-stores, the issue is complicated by industry fragmentation, said Billy Milam, chief operating officer of Atlanta-based RaceTrac. “With dollar stores, there are two companies with 30,000 stores. With pharmacies, there’s Walgreens and CVS. And there are two, maybe three big grocers,” he said. “When you have 7-Eleven with 6% of stores, we’re still very disjointed.”

With dollar stores, restaurants, mass merchants, drugstores and online retailers all making a grab for the convenience space, the competition is formidable and advancing on multiple fronts:

Attacking core categories. Dollar stores, a channel that’s growing faster than any other in retail, are expanding into key c-store categories such as beer, snacks and tobacco.

Creating frictionless experiences. Seattle-based Amazon Go’s “just walk out” convenience format reimagines the checkout process, while mass merchants and restaurants are experimenting with robotics for home deliveries.

Fighting for new categories. Cannabidiols (CBDs) are an emerging category that two major drugstore chains plan to enter. C-stores could be behind in their bid to become a go-to destination for the burgeoning segment.

The competition is “redefining convenience,” Milam said, “both in frictionless and product selection.”

Dollar for Dollars

In 2018, c-store transactions were down 5.8%. Where did they go?

“It’s not difficult to see who our competition is,” Milam said. “We’re right in the bull’s-eye [of] dollar stores.”

Income plays a direct role in where people shop, with lower-income shoppers in the same bracket in which the convenience and dollar channels operate. Both convenience (40%) and dollar stores (43%) had high rates of customers with household incomes of less than $29,000 a year; value grocery (31%), supercenters (27%) and drugstores (26%) were next in line, according to Nielsen figures.

In terms of store count, dollar stores are up 35% over the past seven years, Milam said. “They’re opening three a day with only two competitors, so they’re strong on scale,” he said. Meanwhile, convenience-store count fell for the first time in nine years. 

As dollar stores’ site count is growing, so is their assortment. “Seven years ago, they didn’t sell tobacco, beer and wine,” Milam said, adding that Dollar General even has 30 locations with fuel. “And they’re well-capitalized.”

The threat extends to future product categories, according to Charlie McIlvaine, chairman and CEO of Coen Oil Co., Canonsburg, Pa. In his discussion of SOI category data, he pointed out that CVS Health Corp. and Walgreens are both getting into the emerging category of CBDs, with products going into multiple states and 2,300 stores. 

The competition is not only chasing some of the biggest and most promising categories but also redefining the retail experience, tapping frictionless payment, curbside pickup and home delivery. For example, Milam expects Amazon to model its Whole Foods grocery chain after Fresh Hippo, the brick-and-mortar face of Chinese e-commerce giant Alibaba. 

The Fresh Hippo stores serve as distribution centers for last-mile home delivery. 

Innovation doesn’t stop there. In his SOI Summit presentation, Todd Hale, principal of New York-based Todd Hale LLC and a former consumer and shopper analyst for Nielsen, spoke about Domino’s partnership with Toyota on pizza ordering through car display screens, as well as FedEx and Walmart teaming up for deliveries via robotic vehicles.

“It’s about redefining convenience again … with frictionless and product selection,” Milam said. “They’re getting into that immediate consumables—[something] that we’ve owned.” 

Similarly, with dollar stores, Amazon is also targeting the low-income customer. Milam talked about “Amazon Cash,” a program that allows lower-income individuals to have the online-ordering and home-delivery services that Amazon Prime customers currently have. 

“We own the last mile,” Milam said of c-stores. “[But the competition is] attacking the last mile.” 

Turning the Tables

Fortunately, technology is a tool that can cut both ways, said McIlvaine of Coen Oil. While the competition can use technology to erode c-store profits, it can also provide inspiration to this channel. Take loyalty programs as an example. Seattle-based Starbucks is able to use its loyalty program to increase patronage and cut credit-card interchange fees, with the platform based on a prepaid model. Starbucks has 16 million loyalty members, up 14% from the year prior, McIlvaine said. 

While c-stores may have difficulty implementing a prepaid loyalty model, many chains have successfully executed automated clearing house (ACH) programs. “If we decrease [credit-card fees] by 10%, it’s 10% more income,” McIlvaine said. 

Ultimately, c-stores want to use technology and other tools to create a “pull” effect, in which customers seek out a retailer, vs. a “push” effect that requires promotions and discounts. 

“How can digital create that demand, [with an approach] that’s personalized and reduces friction?” he said. 

Brick-and-Mortar Retail Universe

Dollar stores were the only brick-and-mortar retail segment to grow significantly in site count over the past year. Liquor stores rose slightly, while the rest of the channels—including c-stores—saw declines. 

Trade channel2018 store countUnit change% change
Convenience stores153,237(1,721)(1.1%)
Dollar stores32,6592,3277.7%
Drugstores41,833(1,336)(3.1%)
Liquor stores46,4391820.4%
Mass merchandisers6,235(235)(3.6%)
Supermarkets49,842(1,292)(2.5%)

Source: Nielsen TDLinx

Dollar-Store Growth 

The only retail channel that showed any significant growth in 2018 was dollar stores, with a 7.7% increase in store count. 

 2012201320142015201620172018
Number of stores:23,42124,85325,95227,37828,83230,33232,659

Source: Nielsen TDLinx

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