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CSP Magazine

Cross-Channel: Coming From All Sides

Cross-channel brick-and-mortar and online retailers seek to redefine convenience

If it’s not a high-end fashion retailer selling clothes out of a souped-up food truck, then it’s Amazon considering brick-and-mortar stores. Either way, the invasion of the convenience space keeps getting more and more aggressive.

For the c-store industry, 2014 was indeed a banner year, with the sudden fall in crude prices bringing a hefty profit not only from record fuel margins, but also from increased consumer spending that came with surprisingly low pump prices.

But cross-channel competitors have turned up the heat on core categories—tobacco, alcohol, foodservice and even gasoline—and continue to muddle the definition of convenience.

“The customer has changed and channels are blurring,” said Billy Milam, president of RaceTrac Petroleum, Atlanta, and member of the NACS research committee. “But we’ve turned the bull’s-eye around. With some of our newer, 6,000-square-foot stores, we’ve put the bull’s-eye on [quick-serve restaurants], pharmacy and other food-beverage outlets.”

With more than 150,000 sites, c-stores continue to dominate the retail landscape, Milam said, with one out of every three brick-and-mortar locations being in the c-store channel.

Referring to retailers such as The Home Depot and GameStop, Milam said such cross-channel competitors, while fewer in number, still pose a threat. For instance, Dollar General grew 6% to 11,132 stores last year compared to the c-store industry’s growth rate of 1% overall. And Family Dollar at 8,042 stores and Dollar Tree at 4,992 stores have agreed to merge, producing a new entity with about 13,000 locations.

“These companies are showing no sign of slowing their rollout of products we once owned: alcohol and tobacco,” Milam said. “And you’re soon going to have 24,000 stores owned by two companies.”

Cheap cost of capital has created the rush to merge, he said, giving the resulting company greater efficiencies and economies of scale.

But the c-store industry is seeing its fair share of consolidation as well, with the master-limited partnership (MLP) movement leading the charge. The financial structure offers the MLP entity certain tax advantages, and as a result have raised valuations on c-stores to historic levels.

Today, four of the five largest c-store chains in the United States are networks newly created after mergers or acquisitions.

But not all c-store operators are expanding through acquisition, he said. Many are growing organically, building new-to-industry stores and incorporating modern designs and food-first paradigms.

In turn, growth-minded chains are also “rationalizing” their portfolios, selling off stores that no longer fit their latest business models. Milam presented figures from Nielsen showing a year-over-year change in chain c-stores increasing by only 0.44%, with the number of single-store owners increasing by 1.3%.

The parallel growth of consolidation on one hand and fragmentation on the other may allude to a murky future, especially as competition is quickly evolving on numerous fronts.

Redefining Convenience

Milam also talked about new QSR concepts—Habit Burger Grill, Shake Shack, Zoe’s Kitchen, El Pollo Loco—that quickly attracted public dollars though having fewer than 100 stores, boasting multimillion-dollar market caps and doubling in share value over just a matter of months.

“We’re talking about bringing in new food [concepts],” he said. “And they’ve done it profitably.”

Amazon’s talk about moving into brick and mortar poses another wrinkle in the definition of convenience. “For a long time, we were convenience, but now Amazon is saying we’ll reduce the friction for our customer,” Milam said. “[Brick and mortar] may only be on the drawing board, but customers can drive up in their car, grab stuff and walk out. Low labor, no cash registers, no checkout: It’s … forward thinking.”

Fortunately for c-stores, any “ramp up” to becoming a serious threat to the channel will be slow, Milam predicted. “We ought to be able to recognize some of these … signals,” he said. “But we used to think the best locations will win; the best prices will win.”

To finish his point, Milam brought up Starbucks, high-end fashion retailers and even online taxi firm Uber. Retailers are experimenting with convenient trucks that bring food, beverages, clothing and other items to where consumers live and work. In the case of Uber, experiments delivering convenience items, health-care services and even rented puppies are surfacing, Milam said.

“It’s bringing convenience to the customer,” Milam said.


Store Count Comparisons

While c-stores grew 1% in 2014, dollar stores, cigarette outlets and wholesale clubs expanded at a faster pace, further heating up the retail landscape.

Trade channel20132014Unit change% change
Convenience stores151,282152,7941,5121.0%
--Single stores95,05696,3181,2621.3%
Category killer83,95985,8221,8632.2%
Liquor store46,26646,351850.2%
Drug41,37841,7994211.0%
Supermarket/super center/superette50,64550,8391940.4%
Dollar24,85325,9521,0994.4%
Cigarette outlet10,95611,2703142.9%
Mass merchandiser7,1777,113-64-0.9%
Wholesale club1,2861,320342.6%
Kiosk/other22,84722,303-544-2.4%
Total retail440,649445,5634,9141.1%

Source: Nielsen TD Linx


2014 Cross-Channel Share of Category

C-stores dominate in core categories of cigarettes, OTP and beer compared to other retail channels, but the industry still has room to steal share in packaged beverages and salty snacks.

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