8th May 2018: Australia’s convenience industry enjoyed another year of solid growth and is now valued at $8.4 billion in annual sales, however the channel’s rate of growth slowed for the first time in more than five years.
The Australian convenience industry is now valued at $8.4 billion (based on in-store sales, excluding petrol), according to the AACS State of the Industry Report 2017 released today, with an additional $85 million in revenue generated over the course of the year.
While our industry remains one of the most robust in the world, the backdrop of weak wage growth, record indebtedness, low savings and softened confidence among Australian households saw the industry record its lowest growth figure in in recent years of 1%. This is to be seen in the context however of some chains far exceeding this growth number and a number falling below.
But growth is still growth, says AACS CEO Jeff Rogut, which is a credible result in a difficult year for retail generally. We should continue to have confidence in convenience, he says.
“The convenience channel recorded a positive result in 2017 amid challenging conditions where the impacts of several expected trends were felt more sharply. The importance of a quality food offer as been reinforced while the need for stores to offset declines in communications and travel ticket sales has long been anticipated,” Mr Rogut says.
“It puts the focus squarely on innovating to ensure convenience retailers and suppliers continue to provide an attractive value proposition and relevant product offer in the most convenient, customer-centric environment possible,” he says.
Food fight: food and beverage outperform non-food categories
The growth in Total Food sales was 2.5% while Total Non-Food sales recorded a 0.1% decline, according to the AACS State of the Industry Report 2017.
Take Home Food sales were up 18% in 2017, demonstrating that efforts by the convenience channel to be viewed as a viable food shopping option for busy consumers is paying dividends.
Similarly, the On the Go Food category showed an impressive 13.3% growth over the course of the year, with an extra $63 million in sales.
“These strong results in particular reinforce the need for the industry to continue to innovate in the food area to provide consumers with a broader range of high quality, fresh and healthier options,” Mr Rogut says. “Whilst we have become a solid destination for quality coffee, day parts such as breakfast and evening meals still offer us opportunity”.
Retail evolution threatens the extinction of some categories
The convenience channel recorded an $88 million decline in value from three non-food categories in particular: communications, printed materials and travel tickets.
“This is not surprising given the way new technology is shaping the way we live. These categories have each lost further relevance in physical retail and we need to seek new avenues of growth in these or totally new categories based on customer demand,” Mr Rogut says.
“There is an opportunity to replace these categories with other convenience-based services that people rely on instead, such as parcel collection, delivery services and other trends that reflect modern lifestyles,” he says.
Alcohol sales still offer a huge opportunity and AACS will continue to lobby on behalf of our industry to gain access to a share of this category’s sales which is still dominated by a handful of major companies.
Sub-value cigarettes drive growth in Tobacco
The importance of legal tobacco to convenience stores and as a revenue generator for Government was underlined in the report, with the Tobacco category showing 3.4% growth in 2017, generating an additional $105 million in sales.
Nevertheless, the Tobacco result represented a slowdown in growth from the 4.5% recorded a year earlier. The sub-value cigarettes category again led the way as consumers continue to trade down against a backdrop of excise increases.
“The continued strong performance of the Tobacco category should not only provide clear encouragement for Government to crack down on the illicit tobacco market and protect its cash-cow, but also highlights the potential demand for products like e-cigarettes to provide safer alternatives for consumers who may be looking to quit smoking traditional tobacco,” Mr Rogut says.
International issues
While the performance of the convenience channel remains robust, as ever, the AACS keeps a close eye on international convenience markets to understand potential issues and challenges that our domestic operators could face.
Mr Rogut says the US convenience channel is currently facing numerous challenges with the potential to manifest here, including rising fuel prices, low income consumers, the rise of ecommerce, and increasingly aggressive tactics from quick service restaurants (QSRs).
The US convenience market, which represents $230 billion in merchandise sales, across approx. 160,000 stores, grew just 1.7% in 2017.
“The key to navigating these challenges will be to innovate with the customer experience front of mind, to ensure the offer is as relevant and attractive as possible, and to execute that innovation in a cost-effective way, given the low margin environment stores must operate in,” Mr Rogut says.
“For instance, the cost of living pressure giving rise to more low income consumers obviously impacts our channel with impulse purchases potentially to suffer. In the US, some stores have countered this by adopting a strategy of appealing to more affluent consumers with premium offers.
“This is in line with premiumisation trends across retail, but the key will be execution, given the costs associated with implementing such a strategy amid other cost pressures facing the industry.
“Premiumisation may be one strategy for Australian convenience stores to counter the threat of QSRs, however on this battleground the prioritisation of our core point of difference – a convenient customer experience that represents great value from the customer’s perspective – will remain the deciding factor,” Mr Rogut says.
Looking ahead: Convenience 2030
After a challenging year for Australian convenience, the focus turns to future opportunities that could shape the industry. While there’s a general consensus of the opportunities to be capitalised upon, and threats to be managed, there’s equally a consensus that no-one really knows where the industry will be by 2030.
The AACS commissioned Monash University to complete the ‘AACS Convenience 2030’ report not to provide a definitive answer to this question, but to provide a pathway to get there. The report includes the opinions of industry thought leaders, who highlighted health and wellbeing, digital engagement, culinary culture and sustainability as key emerging trends to watch.
“The key question for us as an industry is how do we tap into these trends? New opportunities for the sector identified in Convenience 2030 included forming strategic partnerships, attracting new customer segments, reinforcing the true value of convenience, innovating cautiously and reframing threats as opportunities,” M Rogut says.
“How our industry takes advantage of these opportunities will determine the success or otherwise of convenience operators over the next 12 years. What we do know is that resting on our laurels won’t suffice, and certainly the industry has demonstrated its willingness and enthusiasm to tackle the challenges head on,” he says.
The Convenience 2030 report details various ‘quick wins’ the industry plans to capitalise on, from leveraging media and social media to engage with influencers and consumers, to developing destination offerings, enhancing service delivery, competing based on the uniqueness of the service offer, and engaging employees in a more effective way to create brand advocates and foster organisational commitment.
New technology like beacon devices to connect with customers interactively, and leveraging self-service technology in and out of store, are also on the convenience agenda.
These ‘quick wins’ will change convenience forever, Mr Rogut says.
“It is difficult to visualise what our typical convenience store of 2030 will look like and how it will operate. But while it will likely be vastly different to the stores of today, as we are already seeing in some overseas markets, it’s reasonable to assume that a convenient customer experience will be at the crux of the offer,” Mr Rogut says.
The complete AACS State of the Industry Report 2017 is available to AACS members as part of their membership in the ‘members section’ of the AACS website, and for purchase by non-AACS members for $2900.00 incl GST.
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