Erika Pacini
AACS Research
February 2012
Innovation will be an important factor in the future of the convenience sector. Recent research into the convenience industry by the Australian Centre for Retail Studies (ACRS) commissioned by AACS found that there is a need for change and development.
As part of the search for differentiation in convenience retailing, thought leaders discussed the need to strategically consider the future offer beyond fuel. This discussion was underpinned by the need to truly engage the convenience shopper and developing a more sustainable business operation that is not overly dependent on fuel sales (which was commonly highlighted to offer small margins).
The research found that product differentiation was acknowledged as a long standing convenience challenge, but also one that could no longer be accepted. Thought leaders agreed that innovation in the type of product on offer, or the way in which it is presented in store is seen as a short-term necessity.
This article will highlight current retail trends within the categories of products, technology and self service options. Some of these trends are currently being implemented in convenience stores and other markets both nationally and internationally.
Products: Food Expansions
In current years consumer tastes have shifted toward healthy, fresh food and drink options at the expense of confectionary, carbonated drinks and tobacco. The convenience sector is seen to be lacking in their offering of fresh healthy meals with one of the market’s shortcomings being that it is associated with unhealthy food options. It is widely believed that the most important factor impacting the convenience food offer in the coming years will be a focus on ready to go healthy food options.
In response to declining sales, McDonalds Australia made a significant effort to counter negative public perception by launching its healthy food Salads Plus menu in 2003. Later that same year, McDonald’s expanded its range to include cereal and yogurt. Since its inception, McDonald’s has reported average growth of 15 percent per annum and in 2005, McDonald’s achieved record revenues of $20 Billion.
Products: Drinks Expansion
Cold drinks have been and will always be a mainstay of convenience retailing, with ACRS research showing that cold drinks were around 20 percent of sales and often a primary reason for convenience store visitation.
Coffee is most commonly discussed as the relatively new ‘hot’ drink category in convenience, and one that over time has the potential to grow considerably (some retailers have already seen large growth). The move into the coffee product category in Australia has been discussed as being led by the 7-Eleven “dollar coffeeâ€.
Quickchek convenience based in the United States offers fresh coffee, iced coffee, hot chocolate and cappuccinos 24 hours a day, every day.  Quickchek is one of the leading convenience store chains in the US selling quality ready-to-eat and heat-and-eat fresh food.  Quickchek is focused on the grocerant niche and building customer loyalty and visitation frequency with fresh food. Â
Products: Food Service Options
As a means of further differentiating the product offer from the major grocery chains, there is an opportunity for convenience retailers to have a full service food offering. This is seen as an area that convenience retailers could create a competitive advantage over grocery chains and challenge that offered by Quick Service Restaurants (QSR). Recent research by Technomic in the United States has shown that take away outlets are being challenged by convenience stores offering more convenient food options.
Another emerging trend in convenience is the collaboration of QSR and convenience stores. Take away outlets such as Quiznos and Subway are popping up in non-traditional locations such as convenience stores all over the United States.
In Canada quick-service restaurant chain, Tim Hortons, recently signed a new development agreement with convenience store chain, Mirabito to open 44 co-branded convenience and gas locations throughout New York by 2012. The new co-branded stores will be comprised of both self-serve and full-serve restaurants. Mirabito recently revamped its existing convenience stores with new interiors to incorporate the Tim Hortons Cafe & Bake Shop brand. Tim Hortons appeals to a broad range of consumer tastes, with a menu that includes premium coffee, flavoured cappuccinos, specialty teas, home-style soups, fresh sandwiches, wraps, hot breakfast sandwiches and fresh baked goods.
Products: Food Service Options – Store Layout
Hybrid convenience stores are a modern type of store emerging in overseas markets. These stores provide both convenient shopping and comfortable dining services. 7-Eleven and Family-Mart, provide tables and chairs of bar style seating within their premises for customers.
Hybrid convenience stores can be categorised into three types:
Traditional stores with outdoor café styled patio dining tables and chairs/benches
Those equipped with wireless network service and an indoor, bar-shaped table with bar stools next to the deli section, &
Those with an internal dining area/section whose layout and atmosphere resemble that of a modern fast food restaurant.
A hybrid convenience store appeals to a modern urban market with consumers who prioritise speed, efficiency and convenience. However, it must be seen as a fast and hygienic alternative to a traditional restaurant.
These hybrid stores are seen as ‘hang outs’ by teens who find the products affordable and prefer to socialise at the 24 hour stores. Some stores also have power outlets so customers can charge their mobile phones or laptops and access free Wi-Fi.
Technology: The Online Channel
Online retail sales have been widely publicised as the major game-changer for retail both now and into the future. Whilst consumers have for some time been using the online channel for purchases and pre-purchase research, many local retailers are only now investing in online strategies and operations. Consumers expect retailers to be online. It is important to note that Australian consumers are more than willing to spend their money online with Australian retailers compared to international retailers if they offer the opportunity to do so (all factors being equal).
A service that encompasses both the physical store and online channel is a ‘click and collect service’
Walmart offer a service that combines both the online channel and the traditional store channel named “pick up todayâ€. This service allows customers to order items online and pick them up a few hours later at their local store. Walmart states that tying online and in-store inventory together lets them sell more products to more customers. Encouraging customers to retrieve items they have ordered online in a store increases visits to the stores, which usually increases sales. In Wal-Mart’s program, customers can select from among 40,000 items online. They will receive a text message or e-mail alerting them when the order is ready, which usually takes about four hours. Since the implementation of the program store traffic and sales have increased.
Technology: The Mobile Channel
It has been suggested that by 2012 usage of Internet enabled mobile devices will overtake online PC browsing. Many consumers are now known to use their mobile phone in-store to compare prices, providing more product options and greater depth of information. Mobile adoption is tipped to increase exponentially. By 2015 smartphone penetration in Australia will reach more than 60% of all mobile devices.
Mobile retail is an integral part of being a convenient multichannel brand. When it comes to mobile, more than 67% of brands now support a mobile site and 45% have an iPhone application, compared to just 30% who were optimised for a mobile platform last year. Statistics from Forrester Research shows that mobile commerce sales are expected to reach $31bn USD by 2016. This same study showed however that retailers could be doing a lot more with their mobile offering. While 56% do offer m-commerce, over a quarter do not offer social sharing, 56% do not provide customer service, and 63% do not have site search function.
In the United States convenience store, Murphy USA has created an app that provides customers with current fuel prices at both its own service stations, but also that of competitors. It also provides a text-messaging service that warns subscribers a few hours before prices go up.
An iPhone application developed for 7-Eleven Sweden combines a store locator with coupons for a free coffee and biscotti. After downloading the application, users type in their phone number and receive a unique coupon code sent straight to their iPhone. To claim their coffee, they just show the code to a 7-Eleven assistant, no purchase necessary. The coupon is only valid once, and free coffee offered one month would likely be followed by free ice cream the next month.
The QR code is continuing to infiltrate daily life, acting as a key element in bridging the gap between online and offline content. Mobile barcode scanning traffic increased over 800% from April 2010 to April 2011. 2D barcodes like QR codes, saw more scans than ID (UPC codes) for the first time since 2010. By embedding a mobile barcode on a billboard, companies are able to activate the advertisement and engage the consumer on the go. QR codes can contain information in both vertical and horizontal directions and can hold much more content in a smaller space than standard barcodes.
A great example of the use of QR codes is by grocery giant Tesco. Tesco combined mobile phone technology and convenience in creating a virtual grocery store on a train platform. Hoping to raise the convenience for commuters in South Korea, Home Plus (Tesco) launched a series of stores on subway platforms that enabled people with a smart phone to shop while they waited for their train. The virtual stores displayed images of items one would expect to find in a standard Home Plus store. QR codes were placed next to the image of each product, enabling commuters by taking a photo of the code, to add the merchandise to their virtual basket. The total order was then delivered to the commuter’s door once they returned home. During the campaign online sales increased by 130%.
Technology: Social Retailing
Social retailing is the next evolution in social media, whereby shopping meets social networks and consumers are encouraged to communicate across channels about the products and services they are interested in. A recent study in the United States surveyed 10,000 visitors of the biggest retail websites, and found that:
56% of shoppers have elected to friend, follow or subscribe to a retailer on social networking sites such as Facebook, Twitter, and YouTube.
Facebook is, by far, the best place to reach shoppers.
More than half of everyone who shops online uses Facebook, and of those online shoppers who engage in social media, more than 80% use Facebook.
However, half of the top online retailers have a minimal Facebook presence. 49% of respondents who friend or follow companies through social media do so to learn about special deals and options and 45% of users want to learn about products.
The fundamental difference between e-commerce and f-commerce is the social exchange that happens between users while shopping on Facebook. Facebook is not seen as a browsing environment instead it is seen as two-way conversation. Offline shopping in traditional bricks-and mortar stores is extremely social and often occurs surrounded by friends, online shopping needs to maintain the social, conversational feel. With more than 600 million users, Facebook has surpassed Google as the world’s most popular website. Although more than 2 million business have promotional Facebook page, only a handful of those brands were making profits from them.
Although not a convenience example this campaign below shows how using the foursquare platform can be beneficial in getting consumers more involved with a brand or launching a new product/service in a way that it can be shared with friends.
In 2010 Jimmy Choo launched an innovative campaign that engages consumers in real time by way of location based social media site Foursquare. The campaign saw a pair of trainers from the Jimmy Choo upcoming line ‘checking in’ at various locations around London and updating their ‘friends’ on their whereabouts. The first person to catch them got to keep them. The campaign also had specific pages set up on Facebook and Twitter, helping it achieve viral spread. This campaign is praised for its incredibly simple execution, innovative use of a social media platform, which resulted in the increased awareness about the brand’s new trainer line.
Technology: Self- Service options- Tablets
Tablet devices are becoming increasingly prevalent in society with 21% of mobile traffic coming from tablet use, research shows this number is only rising.
There are five main ways iPads are being used at a retail level:
Technology: Self Service Options – Kiosks
Kiosks are growing in popularity and have a number of benefits. They offer new ways for customers to interact, provide new cross-selling and promotion opportunities and they free up space on the selling floor but most importantly they engage the consumer and get them to spend more time in the store on their own terms because they are in control.
In-store kiosks provide retailers with another channel for customers to access products. Benefits of in-store kiosks:
Ability to order and pay for goods
Provides cross-selling opportunities
Free up space on the selling floor and in back-rooms
Easier to maintain an effective level of store inventory
Offer new ways for customers to interact with salespeople
US convenience store, Wawa, installed self-service kiosks in more than 500 sites, indoors and outdoors, and next to fuel pumps where customers can order products. Wawa has seen significant improvements in both new item promotions and add on sales, and an increase in customer satisfaction. More than 65 percent of customers rated the overall experience, ease of use, and speed as highly satisfactory.
Technology: Self Service Options- Vending
Vending is another emerging channel in the self-service category. The development of electronic payment technology is opening up vending to higher-priced products and increasing the channel’s convenience factor.
All Seasons Services recently unveiled its first Shop24 automated convenience store in the US, expanding its operations from Europe to seven countries. Shop24 offers 24-hour access to as many as 200 items, including milk, batteries, iPod download cards, and health and beauty aids, in a freestanding, self-service, outdoor unit. To date, Shop24 has seen its popularity grow outside of the US, with over 60 million consumer transactions recorded in 160 locations in seven countries throughout Europe. Consumers can create a “Shopping List” and purchase products either with cash, ATM or credit and debit cards by entering the product code on an interactive screen. A robotic arm then collects the product and delivers it to the ‘take-out’ gate within 20 seconds. Shop24’s product portfolio includes fresh and chilled products, as well as other pre-packaged grocery and convenience products.
Innovation through Collaboration
“If you’re looking to create that point of difference, you have to be innovative and constantly searching for that differentiated category offer, which in most cases can only happen through a solid supplier partnership†[Consultant].
Collaborative innovation is an open innovation strategy that enables manufacturers and retailers to partner for profit and provide consumers with more innovative offerings. Through work with manufacturers and retailers, Research company Kalypso noted an increasing interest in collaborative innovation. To better understand the drivers behind this increased interest, and to learn how manufacturers and retailers are working together in a market where they are often both customers and competitors, Kalypso conducted a research initiative with thirty global manufacturers, retailers, and brokers—80 percent of which are Fortune 500 companies.
Interviews were conducted with executives including CEOs, COOs, Presidents, and leaders in Sales, Marketing, Innovation, Retailing, Supply Chain, Logistics, and other operational disciplines. The interviews identified a number of insights and best practices that can help companies achieve more profitable offerings by working more closely across organizational boundaries.
The research revealed the following 6 key insights and best practice examples:
1.Success in other industries provides valuable lessons
Companies are showing growing interest in results achieved and lessons learned in other industries, where open innovation has been practiced profitably for years. Consider the following examples that demonstrate the power and success open innovation can have in transforming an organization.
The development of Apple’s iPhone applications is one of the shining benchmarks that transformed the company. Originally at launch, the iPhone had only a few software applications which led outside innovators to create additional applications and share them online. Apple recognised this innovation, identified the need for a formal third party development program, and today thousands of external software developers have written applications for the iPhone that have greatly enhanced its value.
Procter & Gamble (P&G) successfully developed a new type of Pringles, Pringles Prints, with customized words and images printed directly on each potato chip. Through its open innovation program, P&G discovered a small bakery with
an ink-jet method for printing edible images on cakes and cookies. The company rapidly adapted the technology and was able to lower product development costs and time to market for Pringles Prints as a result.
Kimberly-Clark launched Sunsignals, suncare products that monitor UV ray exposure, in just six months. Kimberly-Clark identified this small company’s technology, and collaborated with them to introduce a self-adhesive sensor that changes color when a wearer is at risk of burning from too much sun exposure.
2. Relationship and business model paradigm shift is a must
Leading manufacturers and retailers pursuing a best practices collaborative innovation model are realising strong early results. However, for those companies lagging behind, a relationship and business model paradigm shift is a must in order to stay in the race.
3. Find the common ground with each partner
Without a doubt, today’s manufacturers and retailers are each facing significant, but different, challenges. For manufacturers, it may be that the biggest retailer is also their biggest competitor; for retailers, it may be the mounting pressure to differentiate in the marketplace. Despite differing business imperatives, there is common ground that drives collaboration—strategic intersections between the retailer and manufacturer that will benefit both parties. These benefits are what form the foundation for the development of a common vision, underpinning the strongest relationships.
4. Collaborative innovation sounds intuitive, but many find it difficult
Many companies find collaborative innovation difficult—and daunting. Successful collaborative innovation requires a non-adversarial mind-set, a multi-level and multi-functional organizational approach, the ability to learn to speak “another language,†new metrics, and the willingness to share intellectual property. In other words, a complete internal transformation must take place before attempting collaborative innovation with external sources. What many companies fail to realize is that before innovating with a business partner, they must be certain that their own company is structured to collaborate. A clearly formulated innovation strategy that focuses on organizational behavior, processes, and capabilities is the key to success.
5. Collaboration and integration drive business growth
The strongest common benefit for manufacturers and retailers is sales and profit increase. There is potential for a 15 to 20 percent sales and profit improvement opportunity via increased collaborative innovation. This can be considered blockbuster territory. Other benefits include improving idea generation and decision making with shopper and consumer insight data, providing consumers with more innovative offerings, reducing rework, increasing speed to market, and improving execution.
References
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Clifford, S. (2011, March 10). Wal-Mart Has a Web Plan to Bolster In-Store Sales. The New York Times. Retrieved from http://www.nytimes.com/2011/03/11/business/11shop.html
Inside Retail, (2011, July 14. Korean train commuters embrace virtual grocery store. Retrieved September 29 2011, from http://www.insideretail.com.au/IR/IRNews/1600.aspx
Australian Centre for Retail Studies, Various Authors, Consumer Trends Report 2010: ACRS Secondary Research Report 2010. Monash University, Department of Marketing, Victoria, Australia.
WGSN Newsteam (2011, May 3) US Retailers Increasing Mobile and Social Efforts Says Survey. Retrieved October 1, 2011, from WGSN Database.
Rees, A (2011, March 23) F-Commerce: Facebook Retail. Retrieved October 1, 2011, from WGSN Database.
Tan, V (2011, April 27) QR Codes: New York Retail. Retrieved October 1, 2011, from WGSN Database.
Arthur, R (2010, May 4) Jimmy Choo Turns to Foursquare for Treasure Hunt. Retrieved October 2, 2011, from WGSN Database.
Australian Centre for Retail Studies, Various Authors, Convenience 2020 Report. Monash University, Department of Marketing, Victoria, Australia
Johnston S (2011, Dec 17) Quickchek when you’re ready-2-eat all day every day, Grocerant Guru. Retrieved February 8 2012.
http://grocerants.blogspot.com.au/2011/12/quickchek-when-youre-ready-2-eat-all.html
Friedman M & Angelus H 2011, Best Practices in Collaborative Innovation
How Manufacturers and Retailers Can Profit from Collaborative Innovation, Kalypso White Paper. Retrieved February 8 2012. http://www.slideshare.net/jennadudevoir/best-practices-in-collaborative-innovation-how-cpg-manufacturers-retailers-can-partner-for-profit/download
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