CONVENIENCE INDUSTRY CONTINUES GROWTH TRAJECTORY

Jeff Rogut
CEO AACS
7th May 2014
Australian convenience stores have outpaced the growth of the grocery channel for the second year running, recording sales growth of 3.7% in 2013 to reinforce the important role convenience stores play for consumers and the economy, according to the annual State of the Industry Report launched by the Australasian Association of Convenience Stores (AACS), the peak body for Australian convenience stores.
Based on the measured data provided to AACS, the convenience channel grew in value by 3.7% last year, building on the 3.4% growth figure recorded the year before, while the grocery channel recorded growth of just 2.3% in 2013.
In 2012, convenience stores grew at a faster rate than the grocery channel for the first time since 2008, and AACS Chief Executive Officer Jeff Rogut said it was encouraging to see the industry outpace the grocery channel again in 2013.
“Convenience stores in Australia have not only proven their resilience amid tough retail trading conditions, they have again demonstrated the value proposition the convenience channel provides to customers whose shopping patterns and behaviours continue to evolve,” Mr Rogut said.
“Stores must maintain their focus on anticipating customer needs and adapting their offer, however signs suggest a positive future for the industry awaits as stores continue to prioritise innovation.
“It is more crucial than ever for suppliers, some of which may have neglected the convenience channel in recent times to focus their efforts on the major supermarkets, to reassess their forward strategies for their own sake,” he said.
According to the latest AACS State of the Industry Report, after the Food category dominated growth over the last two years, 2013 saw the Non-food category outperform the growth of Food at +3.8% versus +3.5%. Once again Tobacco contributed the largest dollar value growth, despite the trend of shoppers trading down to cheaper brands and further government intervention.
Interestingly, the Communications category reversed a three year negative growth trend in 2013 to record growth of +9.5% in 2013 or $32 million, compared to -11.2% in 2012.
For the Food category, the hero and top growth category overall was Ice Cream. Beverages continued its growth with Take Home Beverages growing at 6.2% and Ready to Drink growing at 4.6%. Both categories combined managed to grow the share of beverages to 24.22% of all sales.
An Aussie favourite comes out on top: ice cream the fastest growing category of the year
After recording growth of just 1.1% in 2012, the Ice Cream category has shot to the top to be the number one growth category in 2013 with an increase of 8.8% or $11 million in value.
While a hotter 2012/2013 summer in the northern states had a significant impact, the emergence of premium offers and shoppers looking for indulgent products has been the single biggest contributor.
Tax increases and plain packaging – yet tobacco sales continue to grow
Despite a seemingly endless string of excise increases and the plain packaging debacle, the value of the Tobacco category continues to grow with an increase in 2013 of 5.4%.
Contributing substantially to this growth was the increasing shift to cheaper brands as well as roll your own varieties, both of which are closely linked to plain packaging.
With 2013 the first full year of reporting that plain packaging has been in operation, the impacts on small business have been wide ranging and significantly damaging.
A recent report conducted by KPMG found that in the 12 months to the end of 2013, the level of illicit consumption grew to 13.9% of total consumption. This is the highest level recorded and an increase from 11.8% for calendar year 2012.The report found that, if all of this tobacco had been consumed in the legal market, it would have represented an excise amount payable to the Government of $1.1 billion at current excise rates.
The KPMG report also showed that volumes of illicit unbranded tobacco have declined by 31% whilst volumes of illicit manufactured cigarettes increased by 151% between 2012 and 2013.
Awareness of illicit tobacco products is very high among small retailers, and both the perceived impact on business and the actual incidence of customers enquiring about purchasing illicit tobacco are noteworthy.
As a result, small retailers tend to have more negative sentiments towards the Government as a result of the plain packaging legislation. There are prevalent views that the Government does not consider the needs of small business in its tobacco legislation, which has negatively impacted the competitive landscape for small retailers in comparison to the larger chains.
The annual excise increases are another case in point. While this may impact the value number of the next four years of reporting, it’s important to note excise increases in the past have failed to achieve their stated health outcomes. Tobacco remains a destination purchase and a legal one at that.
“The focus inevitably must turn to education if Government is serious about tackling smoking. The evidence consistently – repeatedly – shows that tax increases aren’t working and merely represent the height of Government hypocrisy,” Mr Rogut said.
“Plain packaging has been an obvious failure and has pushed the illicit trade of tobacco into overdrive. The irony being, the Government itself is missing out on hundreds of millions it would otherwise be collecting,” he said.
Fuel forecourt battleground
The AACS State of the Industry Report shows Australian retail petrol prices in 2013 were broadly comparable with 2012.
In 2013, an estimated 46 billion litres of fuel was sold in Australia through the convenience channel. The mix of fuel continues to evolve with unleaded petrol down 3%, while the emergence of diesel continues with a 4% increase.
The decline in unleaded petrol consumption was mainly driven by two factors: smaller cars and more fuel efficient vehicles on the road; and a drop in usage of unleaded 91 petrol to more premium fuels driving greater fuel efficiency.
Particularly alarming was the increase in petrol theft, a result of motorists filling up then driving off without paying, which cost Australian convenience stores $45 million in 2013, a 16% increase.
“Petrol theft is a crime which occurs all around the country and one which requires a national response, be it through the issue of heavy fines, loss of license demerit points and more severe penalties for repeat offenders,” Mr Rogut said.
According to Mr Rogut, it was encouraging to see the ACCC seeking to promote a level playing field in the fuel sector, albeit too late for many independent retailers. This appears however to be stabilising with the recent release of supermarket petrol sales statistics showing a decline in their volumes.
Every reason to be confident in convenience
Based on the encouraging performance of the convenience channel as outlined in the AACS State of the Industry Report for 2013, the message to suppliers who may have neglected convenience stores and focused their efforts purely on the supermarkets is clear: it’s time to support these small businesses which have always supported you with innovative products, competitive pricing and excellent service.
“While the model of the major supermarket chains overseas comes under increasing scrutiny, the future for the convenience industry in Australia and globally is positive,” Mr Rogut said.
“Convenience stores continue to evolve and innovate their offering to respond to changes in consumer behaviour. Looking to the future, shoppers will increasingly expect retailers to be available anytime and anywhere, and convenience stores have the capacity and appetite for innovation to deliver a unique service to customers.
“We have already witnessed the success of healthier snack options, fresh food, coffee and premium product lines. As retailers potentially embrace a more flexible approach to store location and design, they will be able to follow shoppers into new areas of their lives.
“Convenience stores are in the main stable, long term businesses with strong brands, systems and proven managers seeking to innovatively develop their offering,” he said.
The complete ‘AACS State of the Industry Report 2013’ is available for purchase by non AACS members through the AACS for $2900.00 incl GST.