Several years into the economic recovery, retail growth overall has been slow. Really slow, according to Nielsen. Across all U.S. outlets, dollar sales have gone up just 2% over the past three years, with unit sales up 0.2%.
“Total store gains have been less than spectacular,” said Todd Hale, a Nielsen consultant and principal of Todd Hale LLC, Cincinnati, during his general session on shopper trends.
But it’s not all gloom and doom. “There’s clearly growth,” said Hale. “You just have to look for it.”
C-store dollar sales were up 4.1% last year, nearly twice the 2.3% increase seen by the dollar and drug channels.
“This is phenomenal growth relative to the competition,” Hale said.
Part of that growth is due to the sheer number of convenience operators. Hale pointed out that c-stores “dwarf” other channels in terms of store counts and growth, having added 29,560 new stores since 2001 and 7,735 since 2010.
“One suggestion: Spend as much energy managing store closings as store openings. Get rid of the bad apples,” Hale said.
Another reason the channel has done so well is its core product mix. Six of Nielsen’s top 10 growth categories (compared to four years ago) are also part of Nielsen’s top 10 c-store categories: beer and malted beverages, salty snacks, new-age beverages, traditional tobacco, candy and water.
“Convenience is growing faster than other channels because it’s carrying products that are growing,” Hale said.
The channel is doing so well that other channels continue to experiment with “going small.” Grocery chain HEB is adding its ninth full-service convenience store, and Wal-Mart has begun to add smaller convenience stores with gas pumps near its supercenters.
That means as well as the channel is doing, c-store retailers can’t turn their backs on the competition.
Channels to Watch
If any channel comes close to competition with convenience in terms of growth, it’s dollar stores. The channel has added 14,897 locations since 2001 and 6,303 since 2010.
But that activity has ramped up in recent years. From December 2007 to January 2016, 23,827 new retail outlets opened across all channels. Of those stores, 35% were dollar (vs. 33% c-store). (See chart on next page.)
“What matters today is not health and wellness—it’s convenient food at a good price.”
Dollar-channel retailers also topped the 2016 list of total U.S. store counts, with Dollar Tree coming in first at 13,516 locations and Dollar General second at 12,493. (7-Eleven was third with 8,331 stores.)
“Dollar General plans to open a record 900 stores and remodel or relocate about 875 existing locations in 2016,” Hale said. “But it’s upping the total for 2017, forecasting some 1,000 new stores and 900 remodels or relocations.”
While the grocery channel might not compete in terms of store counts—up just 3,055 stores since 2001, and 1,056 since 2010—Hale warned that the channel is definitely competing in innovation and experience.
Specifically, he cited Kroger’s success in private label and a loyalty program, a Winn-Dixie pilot store that “celebrates food” with on-site cooking demonstrations, and Whole Foods’ investment in the adult-beverage experience with on-site beer and wine bars.
“Where grocery will win is their focus on the in-store experience,” said Hale. “This should cause you to lose sleep.”
While acknowledging that the convenience channel is typically focused on a quick in-and-out experience, he encouraged retailers to at least consider investing in parts of the store meant to encourage shoppers to sit and stay.
Healthy, Happy and Diverse
Grocery’s emphasis on heightening the shopping experience speaks to the ever-changing preferences of today’s consumers. Hale warned that retailers shouldn’t have tunnel vision with the “better-for-you” trend.
“What matters today is not health and wellness—it’s good-tasting and convenient food at a good price,” he said. “Indulgence matters.”
It matters especially when you look at the percentage of same-store sales growth over the past year. Domino’s leads the list (up 12%), with companies such as Sonic (up 7%), Denny’s (up 6%), Burger King (up 6%) and Taco Bell (up 5%) also growing sales.
And they are not exactly health-and-wellness operators.
Still, Hale said shoppers today are looking for a balance between wellness and indulgence, pointing out that “Walgreens has it right with ‘happy and healthy.’ ”
This is evident when looking at grocery buying trends, specifically how consumers are “flocking” to the perimeter. All perimeter categories—which include deli prepared foods, deli meat, deli cheese, bakery, vegetables, fruits, fresh seafood and fresh meat—saw increases in dollar sales last year, with every category except fresh meat growing unit sales as well.
“Clearly, the perimeter matters,” Hale said. “It’s very important to millennials.”
Retailers have responded to this increased focus on the perimeter by upping offerings of deli prepared meals and bakery, with Nielsen showing sushi and soup volumes up 11% last year (leading deli prepared options) and pies up 20.8% (leading bakery options).
“A lot of it might not be healthy products,” Hale said of these trends. “But the perception is they’re fresher and therefore better for you.”
Besides focusing on broader shopper preferences, Hale suggested retailers look at opportunities to attract different shopper segments—and no, he wasn’t talking about millennials. “Connect to shoppers that matter,” he said. “While we focus a lot of energy around generations, buying power matters.”
For example, 39% of c-store shoppers come from households making $29,000 or less a year. Given that only 28% of c-store shoppers earn more than $70,000, Hale sees an opportunity for growth.
Likewise, convenience remains the only channel in which men drive more trips than women (54% vs. 46% in 2015). But, as Hale pointed out, females generally spend more, so there’s another opportunity for the channel to grow.
Continued: Who Will be the Winners of 2020?
Winners of 2020
While Hale examined the state of the current retail market, he also used the data to predict what’s in store for years to come. No surprise: Nielsen data suggests the e-commerce channel will be the “big winner” in terms of growth, up 12% annually between now and 2020.
The phenomenon is already happening. While Wal-Mart led the pack in terms of net sales in 2015 (with $482 billion), Amazon was the clear leader in sales growth. The online behemoth grew its sales by $18.1 billion last year, while Wal-Mart’s sales were actually down by $3.6 billion.
Luckily, the convenience channel should be the least scathed by the growth of e-commerce, due to the immediate-consumption nature of core c-store products such as gas, beer and tobacco. Meanwhile, niche and specialty retailers—specifically books, department and apparel—stand to lose the most ground, with analysts predicting Amazon will become the No. 1 U.S. apparel retailer by 2017.
In more positive news for c-store operators, convenience came in at No. 2 in terms of projected growth between now and 2020.
“How well you’ve done historically suggests you’ll do well in the future,” Hale said. “But that’s no guarantee.”
To help retailers prepare for 2016 and beyond, Hale cited four key trends to watch and consider:
1. Wellness claims: Products featuring some kind of wellness claim are outpacing retail growth. Nielsen data shows products with organic claims grew dollar sales by 14% year over year as of December 2015, compared with 2% dollar growth across all products. Over the past year, the top five growing claims included “grain-free” (up 87%), “amaranth” (up 77%), “chia” (up 59%), “grass-fed” (up 59%) and “cage-free” (up 44%).
That said, Hale warned: “Real growth comes from innovation, not just changing labels.”
2. Menu transparency: Chipotle, McDonald’s and even Taco Bell provide consumers with an opportunity to “Build Your Meal” on their websites, which provides nutritional information and even diet and allergen filters. Of all the trends, Hale was most ambivalent about what effect—if any—menu transparency is having on consumer behavior, given that it’s easy to rack up the calories, fat and sodium at somewhere like McDonald’s. But the chain is still doing very well.
“Are consumers actually paying attention [to menu transparency]?” he said. “I’m not sure there’s any harm or benefit.”
3. Click and collect: As e-commerce continues to grow “click-and-collect” programs such as Whole Foods’ Instacart and Peapod by Giant (which allow consumers to preorder and pay for their groceries, then pick them up at the store or even a metro station) have garnered quite a bit of support from busy consumers.
“There’s a lot of interest, but there’s an impact,” Hale said, pointing out that click-and-collect programs mean fewer store trips and, typically, a higher cost for retailers. “But it’s something you need to look into.”
4. Mobile apps: The biggest trend on Hale’s radar is the takeoff of mobile apps and payments, with a 2015 Nielsen survey suggesting more than 50% of consumers would be willing to use hand-held scanners, in-store computers, in-store Wi-Fi, scanned QR codes, mobile coupons, mobile shopping lists and loyalty apps.
“Interest is really high, even if usage isn’t there yet,” said Hale. “It’s a trend, it’s happening.”
And it’s going to continue to happen, with Nielsen projecting global mobile spending to grow 300% from 2014 into 2018.
“It’s really time to get your apps moving,” said Hale. “It’s the way of the future."
Members help make our journalism possible. Become a CSP member today and unlock exclusive benefits, including unlimited access to all of our content. Sign up here.