“How will you change to make sure your customers don’t?” asked Laurie Rains, vice president of retail analytics and consulting for Schaumburg, Ill.-based Nielsen, of attendees of the category-management breakout session.
With traditional category management, retailers consider every category in the store as its own little business, with its own P&L and strategy. The role of each category is evident in the store’s overall strategy. Rains encouraged attendees to focus on specific destination categories to achieve maximum attention and profit.
A destination category makes a retailer the customer’s first choice for a particular product. A retailer uses destination categories (just 5% to 7% of the total) to differentiate itself and to be the store of choice to the consumers.
“Your destination categories define you,” Rains said. And for most retailers, a few unsurprising key destination categories drive the majority of traffic to stores: cigarettes, packaged beverages, beer, candy and salty snacks.
But changes are coming that could influence a retailer’s ability to sell these and other products and affect consumers’ desire to spend money on them. Nimble retailers understand these threats and challenges and can evolve to accommodate a changing landscape—and changing consumers.
According to Rains, the categories to keep an eye on include:
▶ Tobacco: Taxes, increased competition and the profusion of e-cigarettes continue to put pressure on the all-important tobacco category and make it harder and more costly to sell. In addition, the number of smokers declined from 20.9% in 2005 to 12.0% in 2012, according to the Centers for Disease Control and Prevention. With 80% of adult smokers purchasing another item with their cigarettes, this is a customer c-stores cannot afford to lose.
▶ Beverages: In the beer category, the top two volume segments—premium and subpremium—are declining as craft and cider experience tremendous growth. The beverage industry is also changing, with growth focused on alternative drinks such as energy and functional beverages.
▶ Coffee: While consumption of coffee is increasing, methods of consuming have changed as flavored and single-cup coffee gain momentum.
▶ Lottery: States’ lottery income has increased 15% since 2007, but many states have already approved or are considering online lottery-ticket sales, which could have a detrimental effect on foot traffic and basket ring in c-stores.
▶ Fresh foods: The desire for fresh foods in c-stores is undoubtedly increasing. Roughly one-third of consumers who visit convenience stores for fresh-food items purchase them at least once a week, making them very valuable consumers. Nine out of 10 c-store foodservice users say the quality and taste of the food are among the most important factors when deciding which c-store to visit.
When looking at these categories, retailers need to find a balance of traditional and emerging products. But more important, retailers need to know their customer to determine what destination category best attracts them.
Cult of Personalities
Convenience stores still skew toward the usual customer: male, low-income, one- to two-member households. Knowledge of where they are going can affect a retailer’s selection of products. Are customers mostly residential and live within the geographic boundaries of a store’s trade? Or are customers mostly people employed by nearby businesses or on their way to work? Is there a significant student or transient population?
Once a retailer understands the “who,” the next challenge is to understand why they shop where they do. For most consumers, it’s all about convenient location, customer service, good prices, availability of gas, and a clean, well-organized store that is easy to get in and out of.
The next step is determining how to communicate with these customers. Males often prefer quick, direct messaging using declarative statements. Males also gravitate toward products they feel were created just for them and can help them solve problems or win something. (See sidebar below.) For females, emotion-based marketing tends to win them over, using visual imagery and a positive emotional message. More nuanced, rather than in-your-face, messaging is most effective. And let’s not forget the method of communication: Customers connect through their phones, so it’s important to reach them through mobile sites and apps.
Rains reviewed six “personalities” of typical c-store customers:
▶ Mary comes in regularly to buy lottery tickets, cigarettes, fountain drinks and snacks. She’s not focused on healthy options but rather good prices.
▶ Nancy arrives every morning for coffee. She’s adopted a healthier lifestyle than Mary has and prefers single-serve products.
▶ Sandy is a mom who can be found running errands all day, getting gas and a gallon of milk. When she needs something, she needs it quickly and doesn’t like to bring in her kids for fear they’ll ask her to buy additional items.
▶ Joe is young and on a fixed income. He uses the c-store as a restaurant for a quick meal or snack.
▶ John is a utility worker who comes in each morning and prepares for the day by purchasing drinks along with his breakfast sandwich and afternoon snack.
▶ James is a fleet driver who considers the c-stores his drug store/restaurant/grocery store. He likes the customer service he receives by being such a regular customer. When thinking about destination categories, think about what customers want, what trends they are talking about and what trip drivers encourage them. Raines challenged retailers to consider what destination categories would be best for their Mary, for example, or John. She emphasized the need for retailers to be smarter to stay relevant, because the environment will only get tougher and the customer more particular.
Today, more small-format stores are popping up, with Walmart’s To Go the most notable example. In addition, QSRs continue to grow; the top 50 QSRs added more stores in 2012 than any other channel, including drug, grocery, c-store and dollar.
Looking Ahead
Retailers should keep an eye on a few key opportunities, Rains said. Growing across all retail outlets, craft-beer opportunities abound. Consumers, particularly millennials, enjoy craft beer for experimentation and variety. And convenience represents 17% of all craft-beer sales but nearly 50% of all beer.
Coffee is still a huge traffic driver for stores, but retailers should look for ways to innovate this traditional category. Bottled coffee, such as Starbucks Double Shot and Frappuccino drinks, is a great place to start. As always, coffee should be freshly brewed and ready any time of day, and while there are labor implications with this, it’s a worthwhile investment, Rains said.
Emerging beverage trends include flavored/ specialty waters and energy—but not just for the young male demographic. More women and moms are gravitating toward energy as well, so retailers must have variety to lure this diverse growing customer base.
More flavorful snacks and treats with bite-sized, high-end, spicy and seasonal appeal are grabbing customers’ eyes. And snacks with a unique base—quinoa, spinach, edamame—have a healthier halo.
Trends that span categories include:
▶ Self-contained snacks for ease of eating, such as protein bars/meal replacement bars or meals in a cone (a real thing!) with all kinds of ingredients stuffed inside.
▶ Aspirational products offer up indulgence on fixed income or allow consumers to try a new snack, such as Cronuts.
▶ Fresh is growing and retailers can differentiate with meal solutions, such as take-home-and-reheat offerings.
In her closing, Rains reiterated that traditional destination categories are changing due to factors beyond most retailers’ control. To combat the changes, understanding a customer’s wants, needs and trends is crucial. Supplier partners can be good sources for emerging trends. Retailers must find the right category balance to protect their “superconsumers” while also increasing engagement with others. Lastly, competitors are moving furiously to win over c-store consumers, but with the right focus on destination categories and smart category-management tactics, retailers can stop them in their tracks.
The Brains: Male vs. Female
Communicating with male and female customers can be two separate tasks. Here’s how they differ:
| The male brain responds to: | The female brain responds to: |
| Quick, direct messaging | Emotion-based marketing |
| Active, declarative statements | Visual imagery (e.g., human faces) |
| Product created just for them | Social connections, feel included |
| Sexual imagery (if appropriate for product) | “Let’s …” and “We …” collaborative language |
| Competitive situations | A positive emotional message |
| Seeing cost savings at point of sale | Stress-free tactics |
| Geometric patterns and objects | Nuance (rather than in-her-face messaging) |
| Knowing that your product can help him solve a problem or win something |
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