Movement within the convenience sector is hotting up as major UK retailers continue to cash in on convenience formats. Following its acquisition of the Bells Stores chain earlier this year, Sainsbury’s has now announced the opening of the first re-branded Bells store in Peterlee, County Durham.
The 2,200 sqft store is the first to receive Sainsbury’s own label products, and the range will keep the best of Bells Stores strengths while at the same time introducing more than 500 of Sainsbury’s own label products in the chill, fresh foods and grocery categories. “This is an important step in developing our presence in the convenience sector,” says Sainsbury’s chief executive, Justin King. “The Sainsbury’s and Bells brands are an excellent match standing for quality, service and value and the opening of the first ‘Sainsbury’s at Bells Stores’ convenience store will make Sainsbury’s products accessible to more customers via neighbourhood stores.”
The store has been given a completely new layout with 15m of chill cabinets together with improved lighting and flooring and an orange and blue fascia incorporating the Sainsbury’s at Bells Stores logo. “Hundreds of prices have been cut which will increase our ability to provide customers across the north east with high quality products and excellent prices on key items across the store,” says Steven Bell, chief executive of Bells Stores.
Sainsbury’s is not the only retailer expanding its interest into this lucrative sector. The Co-operative Group recently announced the acquisition of the share capital of Plymouth and Cornwall Convenience Stores Ltd, Devon and Cornwall Convenience Stores Ltd and Somerset and Bristol Convenience Stores Ltd from Conveco. This represents a chain of 64 convenience stores - 38 of which trade under the Spar fascia and the remainder as Local Plus. Which brings the group’s tally of stores to 1,820 and adds 127,000 sqft of selling space in prime locations in the south west of England. The Co-operative Group plans to run the chain initially as a stand-alone business before converting the stores to its successful Welcome convenience format.
In the last two years the Group has acquired around 750 stores, primarily through the acquisition of Alldays and Balfour. “This acquisition strengthens our presence in the south west and adds to the momentum building behind our convenience proposition,” says Co-operative Group chief executive, Martin Beaumont. “We will add significant value to this business to the benefit of our consumer members.”
Last year total food sales at the Co-operative Group rose by 17.4 per cent to £3.07 billion and food profits jumped 63 per cent to £113.4 million. Conveco chief executive Tony O’Neill says: “This deal and the investment that the Co-operative Group will make across the estate represents a very positive move forward for all our employees and customers alike.”
Not everyone is in favour of supermarket expansion into convenience stores. Last month an event was held at the Houses of Parliament to raise MP’s awareness of the problems facing local communities, and the need for government action to ensure that expansion and trading practices are more strictly controlled. “We need to look at safeguards for convenience retailers,” says David Rae, chief executive of the Association of Convenience Stores (ACS). “What cannot be allowed to happen is that the movement of the major multiple grocers into the convenience market continues unchecked.”
Highlighting the growing threat of market consolidation within the grocery industry, Rae outlined the fact that the grocery market is dominated by Tesco, Asda, Morrisons and Sainsbury who are now moving into the fast growing convenience market, leaving little room for the independent store. He also pointed out that it is not only local convenience stores who are under threat but also shops such as butchers, bakers and off-licenses who find themselves unable to compete. Rae proposed that the Office of Fair Trading consider the grocery market as a single market saying that consumers make top-up purchases as often in supermarkets as convenience stores and that there is no longer a differentiation between top up and one stop. Rae also called for convenience retailers to be safeguarded with a ban on predatory below cost selling and a requirement for transparent pricing from suppliers to be introduced as part of the Supermarket Code of Practice. “These measures will provide the necessary safeguards to ensure that well-run business will prosper whether they are run by multiple groups, affiliated to symbol groups or be independent traders,” he says.
The convenience store market is one of the fastest growing segments in food retailing, and according to Sainsbury’s, is worth £21.5bn. Little wonder that retailers are vying for control in a format that offers the chance to meet the increasing consumer trend of purchasing a small number of items from conveniently located stores. Additional strengths include extended hours of operation and fast transaction along with availability of product and short queues.
NACS’ 2002 Speed Metrics Research reveals that the average time it takes a customer to make a purchase at convenience stores is, at the most, four minutes. Broken down this is 35 seconds to walk from the car to the store, 71 seconds to select items, 42 seconds to queue, 21 seconds to pay and 44 seconds to leave the store. Consumer satisfaction with this type of outlet is also high. From the NACS’ 2003 Customer Satisfaction Benchmark Update Report, convenience stores rated highly in terms of location, ability to get in and out quickly and on the availability of parking.
With limited shelf space available, product range is key to the success of convenience shopping and there is evidence to suggest that sales will increase if fresh produce is prominently displayed. But in an increasingly competitive market other points of difference must also be made.
The Co-op believes it has a unique offer that no other high street retailer can emulate. Co-op Dividend has been reintroduced into its stores with one consistent offer - three per cent on all Co-op brands and fresh foods and one per cent on branded products. It has also been supplemented with the introduction of a Co-op Dividend Visa card which offers customers an additional one per cent dividend on all transactions in Co-operative Group stores and 0.5 per cent on all other transactions wherever they take place.
The group’s primary focus is on meeting the top up needs of the whole community.
With this in mind, it has developed two retail brands designed to meet the needs of towns, neighbourhoods and villages. The Welcome brand, with its blue and yellow fascia, caters for the top up and impulse shopping needs of passers by and local people. Its market town stores are situated in small towns, villages or distinctive neighbourhoods providing top-up and main trip shopping for customers who need to shop quickly, easily and locally. These stores carry a blue and white fascia carrying the identity of the specific town or village they serve, reflecting the roots in the local community. Both of these brands reflect the needs and aspirations of today’s consumers by placing a heavy emphasis on fresh foods.
Forecourt shops are another increasingly vital element in the convenience store market, with many operators trying to maximise the purchasing potential of petrol consumers. Much of the profitability of service stations depends on non-fuel sales. Reflecting this is the fact that within these store formats, product ranges have been significantly developed in recent years and that the stores themselves have become increasingly sophisticated.
With the growth of a 24-hour society it is likely that the forecourt format will become even more important. Sainsbury’s joined up with Shell to expand their joint fuel and convenience store operation at 100 existing Shell locations across the UK. This followed a successful trial at six sites that emphasised convenience, quality fuels and ease of shopping when combining Shell’s branded forecourts and Sainsbury’s Local store format. Measured by sales per square foot, 11 of the top 20 performing stores in the company are Locals and three of these are located on Shell forecourts.
Along with ease of shopping the stores provide a range of quality fresh fruit, vegetables and prepared salads along with everyday non-food items and Shell’s car care and lubricant products and should be an effective way of bringing its products into new areas of the UK and targeting new customers.
Despite prolific growth in convenience store activity, some research suggests that the number of convenience stores is falling in Europe and the US, although sales are increasing. Predictions point to convenience stores evolving into a larger format, offering a wider range of products as they cater for increasingly sophisticated convenience needs in terms of quality products and fresh produce.
According to Datamonitor it is simply a lack of consumer understanding that is holding the market back. Despite the hype, it says, consumers of lower social grade are the biggest convenience store spenders, and despite being the largest convenience market in terms of sales, the UK has only average convenience store penetration and number of shopping trips per week.
Research has also found that the breakdown of family structures, greater demands on leisure time and more time spent travelling and commuting, are all having a major effect on the way consumers shop. Average household sizes in western Europe have consistently fallen in the last decade and meal times are more irregular. Because commuting and travelling times are increasing many consumers are looking to minimise the effect of this on their leisure time by multi-tasking when travelling. Convenience stores have benefited as a result because consumers seek to shop, eat and drink while on the way to another location.
As might be expected, the future development of consumer behaviour will have an impact on the development of the convenience sector and Datamonitor predicts that as well as a major trend towards the rationalization of store numbers, the most probable future direction of the market will see a significant increase in the level of top-up shopping combined with a slight decrease in the number of convenience stores which will increasingly become an alternative to supermarkets for medium-size shopping trips.
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