Social change and economic challenges present huge opportunities for the UK’s convenience retailers, argues Siemon Scamell-Katz, founder, TNS Magasin
The Co-op’s takeover of Somerfield and Waitrose’s recent announcement of its entry into convenience mark the next stage in the evolution of a vibrant and thriving sector currently estimated at around £27.4billion.
With this move the Co-op becomes Britain’s fifth largest food retailer with a market share of around 8%. More than 3000 branches will afford it an enviable geographic reach.
Plus the Co-op works its real estate hard: it was one of the first retailers to examine shopper behaviour during different in-store missions as well as the first UK retailer to build a virtual store.
Waitrose meanwhile plans to open a number of small shops, starting with trial stores early in 2009. By all accounts, Waitrose is aiming to recapture the ambience of a traditional neighbourhood grocery shop, offering not only local produce but also local information and a sense of community.
Strategists at both companies are mindful of the way that retail fragmentation, including the growth of the internet channel, is changing the way we shop. This in turn modifies the demands that shoppers make on retailers.
With many commodity items being bought increasingly on-line or in an occasional bulk shop, shoppers are more receptive to smaller local outlets for their ever-more-frequent top-up and specialist shopping missions.
So it’s interesting - but not surprising - that Waitrose plans to dedicate a large proportion of selling space to fresh food, with emphasis on locally-sourced food. Apart from being good news for its suppliers, this reflects a wider national trend.
The Department of Health and the Association of Convenience Stores have launched a joint initiative - offering help with purchases of new shelving and chillers as well as promotional material to encourage local people to eat healthily - to help retailers in deprived areas sell more fresh fruit and vegetables.
Meanwhile Palmer & Harvey has launched a wider chilled and fresh foods offer in its drive to maximise sales to its independent and convenience retailer customer base.
Along with food to go, these categories are changing the shape of the sector to bring it into line with today’s shopper needs. In-store formats are changing to reflect this as the convenience channel itself becomes more sophisticated and more diverse.
Even the current pressure on shoppers’ purses represents an opportunity for convenience retailers. With eating out a casualty of economic fears, spontaneous indulgence in-home is an increasingly attractive option. And treating is a frequent element of the convenience mission.
The rise in fuel prices also favours the local store over outlets further afield. For many shoppers, the price differential at the convenience store is less, or at least perceived to be less, than the price of petrol for a longer trip. Nor are promotions expected by convenience shoppers.
The downside is that it’s arguably risky to expand a retail estate in the current economic climate. While Waitrose is confident that there is untapped demand for its offer among shoppers who do not currently have one of its stores nearby and want to purchase high quality fresh food, its choice of location will be critical.
Nor should we forget the march of the discounters. With food price inflation in double figures, Lidl and Aldi are growing market share and this is not all at the expense of the supermarkets: the convenience channel is also being hit.
This is likely to continue as the discount chains also extend their estates. The result: more and more shoppers will be using the discounters not just for commodity purchasing but also for more frequent shopping, notably top-up missions for fresh foods.
So how should convenience retailers make the most of their opportunities and counter the power of retailers perceived to be cheaper? The answer is to understand and cater for the convenience shopper’s mindset and needs.
For example, shoppers’ overall time spend is not well-managed in a typical convenience outlet. Typically, nearly half of the average visit is spent doing something other than shopping. This is because shoppers do not find convenience outlets easy to shop.
By improving layout and adjacencies, convenience retailers can both simplify the shopping trip and - this is important - increase shoppers’ perceptions of the breadth of ranges on offer.
Another key consideration is that a substantial proportion of convenience shoppers are purchasing for immediate use and the majority of purchases in these outlets are for consumption on the same day.
This should inform product ranges and suggest to imaginative retailers opportunities to inspire additional purchases and trading-up. For example, day part merchandising: nobody has really got on top of this yet but it represents such a great opportunity for small stores to maximise sales per square foot.
Shopper-based improvements such as these will create a virtuous circle encouraging shoppers to consider the outlet as a reliable solution-provider.
Times may be challenging but all the signs are that shopper-savvy convenience retailers are well-placed to benefit from societal change.