The convenience sector grew by four per cent in 2005 and is now worth £24.9 billion a year, according to industry think-tank IGD. Overall, store numbers declined by 1.1 per cent in the 12 months to 51,526, which represents a continuation of the trend of long-term contraction. But there were significant differences between the segments which make up the UK convenience sector and the overall expansion is outpacing the growth being achieved by the mainstream grocery retail market.
“[The c-store sector] continues to grow despite a reduction in store numbers, as lifestyle and social changes, along with an overall improving convenience offer, increases shoppers’ desire and ability to spend in convenience stores,” says IGD. “The latest year has been one of continual change, although the level of consolidation and acquisition activity was much more muted compared to 2003 and 2004.”
The Association of Convenience Stores (ACS), the powerful voice for over 32,500 local shops, has also seen the shoots of recovery bursting through. “The entry of the major multiples into the convenience store sector has made competition extremely tough,” says ACS director of public affairs, James Lowman. “You have to recognise that these organisations bring into the sector not just expertise and very strong brands, but also significant buying power advantages over our members.
“But the sector is growing at a faster rate than the rest of the grocery market. That is obviously good news for our members and reflects the fact that consumers like to shop locally, to have an alternative to the supermarkets, and that they want to be able to top-up on products. They don’t just want to do one big weekly shop.”
Market research by Populus found that 63 per cent of adults believed their choice was being limited by the purchase of local stores by supermarket chains. Some 68 per cent said that this was damaging the fabric of the local community and 62 per cent said it had damaged the personal service and friendliness of their local shopping experience.
At Tesco, the multiple retailer that has made the greatest strides in the c-store environment with its Metro and Express formats, head of produce Peter Durose says: “There are some extremely good local convenience stores and store chains that have provided a very good service for their customers and I think our entry into the market - along with Sainsbury’s and others - has really started to move that forward. For the fresh produce sector in particular, it has been a real plus. Bringing more product to a more convenient location for customers has been a big win.”
Stuart Samuels, senior business analyst at IGD, says the new entrants have forced a change of emphasis. “There has been significant progress in fresh produce terms in the c-store sector, as the multiple retailers have pushed up quality and the expectations of consumers. Consumers now expect their convenience stores to have a good fresh produce offer and there has been big investment in dedicated equipment, storage facilities and staff training as the sector responds to these drivers and ups its game.”
There was recognition of this at the recent ACS Conference in Birmingham, where the consensus was that rising to the fresh challenge is key if the traditional c-store operators are to stay in the game long-term, in the battle against both supermarket chain-owned c-stores and the supermarkets themselves. That includes, of course, fresh, chilled and prepared foods, but fruit and vegetables are high up on the must-do-better wish list.
A representative of Camden-based c-store specialist InSight tells FPJ: “Anyone who hasn’t got their fresh offer right within the next four years will be left behind. It is the key driver of the c-store sector in the future.”
ACS says having a good fresh offer attracts valuable and loyal shoppers to c-stores. But it also recognises that, after years of the sector paying only cursory attention to this aspect of its portfolio, it is not easy to get it right.
Research has shown that, on average, ‘fresh’ category shoppers spend 20 per cent more a week at their c-store than the average shopper. But only three per cent say the “range of fresh products” is the best thing about their c-store. And a third of shoppers would not even consider buying fruit or veg from their c-store.
IGD’s Samuels says fresh produce represents 3.9 per cent of sales in the average c-store, up from just 2.8 per cent in 2002. “It is still relatively small, but becoming increasingly important to overall sales,” he says. “There is definitely still significant growth to go for, as c-stores react to the consumer desire for freshness, provenance and high quality.”
The advice from ACS is to “stock fruit and vegetables to a very high standard or they will detract from the rest of the store. The most important factors to shoppers when buying products like fruit and veg are “freshness” (52 per cent) and “quality” (37 per cent). Nothing else is as important… not even price”, it says.
David Cullen, corporate affairs director at Nisa-Today’s (Holdings) Ltd, says fresh holds the aces if his organisation is to successfully compete against the big four multiples and the rest of its sector. “We will only achieve this if we satisfy a rapidly growing consumer demand for fresh and chilled foods. It is an area of great opportunity and we will not realise our full potential if we don’t have a supply chain that understands those needs.”
Mark McCammond, who delivered a presentation in Birmingham entitled “Making a living… next door to Tesco”, outlined the scenario his Spar forecourt store in Ballyhackamore, Belfast, faced when Tesco Express moved in as neighbours. He too said the fresh offer was a major focus. “A real barometer of a quality outlet is the produce at the front door. If it doesn’t look good, it’s the worst advert for the store,” he said. McCammond’s store is delivering 33 per cent of its turnover on fresh content, which is highly unusual for a forecourt format.
Somerfield, which has a large network of forecourt c-stores, says it tries to treat the produce offer in a similar fashion. “Our forecourt stores have a very different offer,” says head of produce, Dominic Edwards. “We have small box outer units, we sell single bananas and single apples, but they all still have a core produce range. We want customers to go into any of our forecourt stores and feel they are in a mini supermarket.”
Of course, it’s not all about fresh. On a broader front, while the typical c-store operators have to a greater or lesser extent embraced the need to respond positively to the ultra-competitive environment they now find themselves in, there is still a desire to see the brakes put on the expansion of the multiple retailers onto their patch. ACS lobbied the OFT long and hard to refer the grocery retail market to the Competition Commission and therefore welcomed the decision to do just that with open arms.
The Commission has stated that the inquiry will include consideration of the entry of the big four grocery retailers into the convenience sector, practices such as price-flexing and below-cost selling, and ways in which planning law is applied to the retail market.
Lowman says: “This is exactly the sort of inclusive and thorough review that we have been asking for.The Commission is looking at the market from top to bottom, from issues around buying power and the relationship between retailers and suppliers, through to the pricing tactics that we believe can amount to predatory pricing.
“We contend that the reduction in choice and the concentration of buyer power in only a few hands is damaging to consumer interests.
“All our members are calling for is a level playing field on which to compete. At present, the “big four” have market power, which they can use to target smaller retailers.By looking at the whole of the market, the Commission will be able to examine the buying and pricing practices that we are concerned about and see the way in which the “big four” use their financial muscle to acquire and develop sites.
“The Commission’s statement also opens the door to an examination of related products which have an impact on the grocery market, such as fuel.We believe that the fuel pricing policies of the “big four” are examples of how below-cost selling and the exercise of market power can be to the detriment of competition and the consumer.”
It remains to be seen, of course, what the Commission’s enquiries will throw up. But considering all factors, when looking at future performance, IGD forecasts that the value of the c-store sector will continue to grow, with sales reaching between £30.8bn and £33.9bn by 2011.
“Consumer demand for convenience retailing remains strong and although there may be economic factors which are holding back performance, these are outweighed by social and competitive factors which are driving performance forward,” it says.
Now it is up to fresh produce suppliers to adapt to ensure they secure the optimum slice of the action.
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