CHICAGO — The world right now is in an inconvenient situation, but there’s incredible opportunity for brick-and-mortar convenience stores.
Those words of hope come from Nik Modi, managing director of beverages, tobacco and household personal care at RBC Capital Markets.
Modi spoke during a recent webinar examining retail in 2021. Click here to view a CSP slideshow on Part 1, with Krishnakumar Davey of Chicago-based IRI.
The opportunity that exists today is for c-store retailers to make changes so they’re prepared for the future.
“Everyone got so caught up in COVID that they lost sight of the longer-lasting changes that were already taking place and that COVID accelerated so that everyone is prepared for the future,” Modi said. “If you understand the challenges coming around the corner, you’ll be able to make the decisions and choices to put yourself in a much better position competitively to evolve and adjust and be ready for the consumer of the future.”
The axiom “slow and steady wins the race” is no longer true, he said.
“COVID forced and accelerated change,” Modi said, adding that it was not a disruptor but something that accelerated developments already under way.
The very nature of convenience is changing, Modi stressed. Click through to read more …
“Convenience” is from the Latin meaning “to be suitable,” Modi said.
“But suitable is not good enough anymore based on what we see in the marketplace. So what does this mean for c-stores?” Modi asked. “It might mean a drop in the number of c-stores.” In 2019 and 2020, he pointed out, c-stores in the United States fell 1.1% and 0.3%, respectively, after eight years of growth.
“The biggest issue is the failure to adapt,” said Modi, citing Charles Darwin: “It is not the strongest of that species that survives, nor the most intelligent, but the one most responsive to change.”
“I’ve been doing this job for 20 years, and I would say the convenience-store industry has failed to adjust and adapt,” he said. “And I’m not talking about one-way aisles.”
What's normal nowadays
Modi said staying at home more is not a new phenomenon, noting that in 2018 games and puzzles experienced 3% growth from 2017 and barware tools and setups jumped 52%.
Also in 2018, the journal Joule found Americans between 18 and 24 spend 70% more time at home than the general U.S. population, he added.
Another study, by marketing research firm Mintel, found 28% of millennials between 24 and 31 preferred to drink at home because going out was too much effort, compared with 15% of baby boomers.
Why? “First off, we’re all working a lot more,” said Modi, citing a survey of more than 300 companies in the United States and Canada showing nearly two-thirds of employers were demanding longer hours of their employees than they did three years prior.
“There’s no such thing as a 40-hour work week, especially with blurring of lines between work from home and having personal time,” he said. “We’re all attached to our devices, right? With social media and streaming services, there’s really no need to leave your house to entertain yourself.
“Also, it’s scary out there: Since 9/11 we’ve noticed cocooning at home.”
It took 20 years, from 2000 to 2019, for e-commerce to reach 11% penetration of total retail sales, according to the U.S. Department of Commerce and RBC Capital Markets. In the last six months, however, it has jumped more than five points, “and it’s only going to get more profound,” Modi said:
“In 70% of the population, Amazon can do next-day delivery,” he said. “If you add in Walmart, which serves more rural areas, I would argue about 85% of the population has access to same-day or next-day delivery. The entire definition of convenience has just changed. It’s not walking into a small-format store to get a limited assortment of items; it is now whatever you want comes directly to your home, and in many instances for free.”
Modi rolled off examples of technology on the edge of widespread reality: Amazon drone delivery and floating warehouses are being tested, as are 24-hour mobile convenience stores that drive to homes. In West Hollywood, a Robomart offers fresh fruits and vegetables. Uber is testing McDonald’s drone delivery in San Diego.
“The very nature of convenience is evolving, so shouldn’t the convenience-store industry evolve as well?” Modi asked.
Right now, the three largest drivers of c-store traffic, gas, tobacco and lottery tickets, are being challenged, he said. There are fewer smokers and gas and cigarettes are in a structural decline.
“We know these are still the main drivers of c-store traffic, but no one in the c-store industry has really tried to change that dynamic.”
More people will be working from home after COVID, and there will a greater hybridized setup that will affect the c-store industry because of sheer traffic, he said.
Think about rotating your assortment to be relevant to your customer base instead of having a one-size-fits-all template. Also, don’t overwhelm customers with too great of an assortment, Modi said, citing a jam taste-test study revealing the less one offers, the more one sells: 3% of shoppers bought jam when offered 24 varieties, but 30% bought jam when just six varieties were offered.
“Limit your assortment and create space for faster-growing categories, he said.
Walgreens and Kroger Express have a partnership where the retailers share space and host the other’s products.
But while this can be a threat to c-stores, they have the advantage from a geographical/frequency standpoint: there are about 152,720 c-stores in the United States versus 8,329 mass merchandise retailers, Modi said.
“Invest in technology and data insights to understand what your consumer is doing and create a seamless shopping experience,” he said. “Imagine being able to offer different promotions to different people based on accumulated data, being able to avoid giving promotions to customers who would have paid full price, and knowing the likelihood that these personalized promotions will influence a consumer to buy.”
Build food brand
There is an estimated $70 billion of orphaned restaurant spending in the marketplace today, Modi said. Assuming half, $35 billion, goes into retail, “That is a big opportunity I think the c-store industry can capitalize on. There’s an opportunity to upgrade your foodservice opportunity, your menu, your packaging and start building that brand now," he said.
“When I go on my DoorDash, I can only get chicken fingers or hot dogs from my local convenience store. I’d like to be able to buy prepared meals for my family and make that a legitimate option just like I would order from a restaurant. Think about all those local restaurants in your community struggling that can’t stay open because the costs are too much, but they still have a kitchen and still want to make food and stay in business.," Modi said.
“Why not partner with them to provide meal solutions for families during this pandemic so you can really increase that brand and become a legitimate option for consumers when the pandemic is over,” he asked.