Top trends driving growth in convenience

James Harries
The retail perspective

As Sainsbury’s announces that it will have more convenience stores than supermarkets next year, James Harries and Michael Freedman look at the major trends that are accelerating the growth in this expanding channel.

The UK convenience market for the 12 months to April 2013 was worth £35.6bn, according to the latest IGD forecasts. Social and economic changes continue to help drive growth in the channel, with shoppers still favouring a ‘little and often’ approach to help keep to budget and reduce food waste.

Pushing the boundaries of convenience

Retailers are increasingly moving away form a ‘one size fits all’ approach to convenience retailing, and instead are looking to tailor their stores to meet the needs of local shoppers.

Multiple convenience stores (c-stores), such as Sainsbury’s Local, have been doing this based on customer demographics for a number of years, adapting their stores to cater for a range of needs.

We are beginning to see symbol groups take this approach. Costcutter, for example, offers a ‘good, better, best’ proposition through its Kwiksave, Costcutter and myCostcutter fascias respectively. This gives c-store operators the flexibility to select a fascia which best suits the area they trade in.

This year we have seen the development of the ‘discount c-store’. Aldi has opened a trial c-store location on a high street in West London. This store offers a strong snacking range alongside Aldi favourites such as the ‘Special Buys’ promotion.

Booker, the wholesaler behind the Premier symbol group, has launched Family Shopper. These stores carry a reduced range, with three quarters of products on permanent promotion. This marks an exciting phase in c-store development – blurring the lines between convenience and discount.

As acquiring space becomes more challenging, retailers are adapting. In densely populated areas, where it may not be possible to open a super or hyper market, larger c-stores can fill this niche. On the other hand, symbol group Nisa is continuing the roll out of its Loco format. This allows smaller c-stores, who are typically 1,000 sq ft or less, the opportunity to be part of the symbol group.

Demonstrating authority in fresh

IGD’s latest research shows fruit and vegetables are the fastest growing category in the convenience channel.

And our ShopperVista research shows almost a quarter of convenience shoppers would be encouraged to purchase more fresh products if there was a stronger local range in-store. This represents a huge opportunity for convenience retailers, as they are often at the heart of the communities they serve, with many independents having links to local suppliers and producers.

The Southern Co-operative offers a great example of selling local products. In-store, clear signage identifies local produce, with shelf-edge labels highlighting local suppliers – building a connection with customers. This approach allows The Southern Co-operative to not only engage with shoppers, but to differentiate itself from its competitors.

Creating ‘theatre’ around fresh products is another trend we are seeing in the channel. In a number of stores, retailers are using props such as wooden crates and wicker baskets to help create a market stall look and feel. This approach not only adds an element of theatre, but also helps demonstrate authority in the category.

Linked to this, retailers are increasingly using signage to communicate with customers. Tesco, for example, is using their ‘Love every mouthful campaign’ which is designed to communicate its increased focus on fresh food.

Moving beyond traditional convenience

C-stores have a unique opportunity to act as the link between the digital and physical – providing a space for shoppers to pick up goods they have purchased online. This is something which continues to evolve, with Amazon lockers and ‘click and collect’ services continuing to be rolled out.

We are continuing to see more tailoring of products across the whole channel, with retailers of all sizes looking to provide goods that customers want in a given area. This may be achieved through stocking additional ranges of foods, including gluten free or religious and ethnic ranges. All this is helping operators to offer something different, it demonstrates the store is listening to customers and also develops its reputation for being ‘famous for’ something – helping it standout from the competition and becoming a destination retailer.

We are also seeing the rise of additional services as a means to offer something different and drive footfall. One of the services I have seen recently was a Ticket Master concession in a SPAR store in Northern Ireland. Part of a Post Office counter, the service allowed customers to purchase tickets for a wide range of events – giving an extra reason to visit the store.

The shopper perspective

Michael Freedman
Shopper Insight Manager, IGD

Convenience in a multichannel world

As IGD’s shopper insight expert on the convenience channel, I am often asked how convenience store shoppers differ to main supermarket shoppers. The answer is simple – they are mainly the same people. Our latest Channel Focus tracking results shows that 85% of adults had used a convenience store in the last month.

What’s different is their approach to shopping, behaviour and expectations, when they are in convenience stores (c-stores). The shorter time they spend in c-stores than in supermarkets, the lower amount they spend there and their focus on topping-up on a few staple products such as bread and milk rather than completing a full shop.

However, there are signs that the world is changing. The perceived limited scope of convenience stores may well be consigned to the history books.

More multichannel shopping as lifestyles get busier

Our ShopperVista insight has shown an increased trend for multichannel shopping. In August, more than six out of ten (62%) of shoppers said they use three or more grocery channels for their food and grocery shopping, the highest level we’ve recorded since December 2011.

Our forthcoming Shopper Trends 2013 Q4 presentation, to be published on ShopperVista at the end of October, will look at what is driving this trend for increased multichannel shopping. One of the key themes we are seeing is that many shoppers are interchanging between different channels such as discounters, supermarkets and convenience stores to fit in with their busy lifestyles.

Changes to main store shopping

This is having an impact on the traditional role for each channel.

Supermarkets and hypermarkets, for example, are traditionally where shoppers do their main weekly shop, while the other channels fight it out for any other missions. During accompanied shop interviews with shoppers, more shoppers are conducting top-up shops in larger store formats. At the same time more are conducting a main shop in other channels.

Almost half (45%) of all shoppers in August claimed to shop at food discounters, with one in ten (10%) now using a discounter for their main grocery shop – the highest level yet recorded.

While initially it was discounters’ low prices that attracted shoppers, it is now the quality of their products that is making them popular. Shoppers also tell us that they are likely to continue shopping at discounters even when their personal economic circumstances improve. Their ability to do so will be helped by Aldi and Lidl’s investment in new stores to build their reach in cities and communicating more about their fresh and premium ranges.

Shoppers are telling us that they are changing the way they use c-stores as well.

Our latest Channel Focus tracking results showed a near doubling from 5% to 9% who said that they used their main c-store to conduct a main grocery shop between May and August. This may be a temporary blip, influenced by the warmest, sunniest and driest summer since 2006. However, there are signs that convenience could be more of a destination shop in the future for shoppers.

Changing store design to meet c-store shoppers’ needs

As James has already outlined, convenience retailers are increasingly developing more relevant formats and categories that effectively meet the changing needs of convenience store shoppers. We are seeing a move away from a ‘one size fits all’ approach to one in which different c-stores are tailored to their local catchment area e.g. providing food-to-go near train stations.

Our latest Channel Focus report on Missions and Merchandising in Convenience stores reveals that convenience store shoppers are relatively evenly split whether they want changes to store layouts. While older shoppers are more resistant to change, three in four younger shoppers are open to change in store layout. These are the shoppers that will help shape the convenience store of the future.

New merchandising tactics being employed

C-store shoppers rank the following as the top three changes they would most welcome to store design:

Top changes preferred to layout of main c-store
1. Have more food counters
2. Group healthy products together
3. Locate all fresh at front of store

These results show that there is a desire among some c-store shoppers for retailers and suppliers to make it even easier to conduct their shop and thereby save time. So they’d like to have similar products in the same section of the store, rather than making them visit different sections of the store to get these items.

Topping-up on a few staple products such as bread, milk and eggs is clearly the current top shopping mission at convenience stores. However, we have identified more than 20 shopper missions at convenience stores.

Our research shows that there is a significant opportunity for suppliers to help retailers provide a range of solutions, such as providing products to make an evening meal grouped together, to meet different shopper missions to help retailer differentiation.

The future

The convenience channel is set to grow by 29.8% over the next five years, taking its value to £46.2bn – highlighting the importance for retailers and suppliers to keep up-to-date with developments in channel.

The UK convenience channel remains innovative, with retailers and suppliers looking to continually evolve to meet changing consumer needs. Technology, additional services, food-to-go and a greater community focus are all influences we are continuing to see playing a role within the channel.

Over the next 12 months we are likely to see the channel continue to evolve, with retailers and suppliers continually looking to differentiate themselves from the competition.