Multiples eye c-store growth
Alcohol sales are more important than ever in convenience stores and are a rare opportunity for growth in an increasingly tough field.
There are now 48,289 convenience stores in the UK, according to the Association of Convenience Stores. That number is decreasing by some 500 or 600 a year as independent c-stores shut down – but the number of shops with drinks licences is growing.
“Compared with 20 years ago, when most chains were probably all about food, the two big growth categories in our sector have been alcohol and services,” says ACS chief executive James Lowman. “To some extent that has been because of the closure of traditional off-licences.”?He believes the growing number of convenience stores selling alcohol contributed to the collapse of First Quench Retailing, but says its demise has been a double-edged sword for the sector.
“It was a sign that convenience stores were becoming better at alcohol retailing,” says Lowman. “One of the reasons for it was that people buying alcohol locally were becoming as likely to buy it from a convenience store as from a specialist.”?But while some c-stores located close to a now-empty Threshers site have been able to seize the opportunity and gain sales, others have seen parades lose footfall and their own shops consequently lose business.
“People were still going into a licensed convenience store and then going to Threshers, Wine Rack or other specialist off-licences,” says Lowman. “One of the reasons behind that was people looking for something a bit different. They wanted product knowledge, or to understand a bit more about the product, or a broader range in the chiller or more specialist needs.”?He says convenience stores are learning from the demise of First Quench and are trying to meet those needs. Symbol groups, in particular, are placing more emphasis on wine knowledge by training staff and encouraging them to run wine clubs and hold in-store tastings. Today’s has even launched a specialist drinks fascia, Today’s Local Drinks, which it hopes will make up around 10% of its 400-strong estate by 2012.
However, Matthew Dickinson, commercial director at Thierry’s, is not certain c-stores are the future of drinks retailing. “Those places are probably on the wane – a lot of them are not particularly exciting places to go to buy alcohol,” he says. “I’m not sure that I’m 100% convinced that the future lies there. It does depend on your consumers being a bit disorganised, which is a bit of an odd concept. It doesn’t really strike me as being great retailing.”?Enormous growth?But he notes that Spar, which has more than 2,500 shops, has seen enormous growth after revamping and upweighting its wine. “Likewise, the Co-op does a hugely professional job when it comes to alcohol,” he says.
There is obviously something in it – or the multiples wouldn’t be targeting the market so fiercely.
Tesco currently has 1,282 Express stores, up 15% on the previous year following 167 openings. It is currently trying to merge with the Mills Group, which has 85 shops. Sainsbury’s has 356 Local shops including a number of new openings last year, while Waitrose has 12 shops in its new convenience format and plans to open 27 this year.
Costcutter has 1,587 shops around the country, with typically 13%-15% of its shelf space devoted to alcohol, which accounts for roughly 17% of turnover. The group offers display advice including detailed planograms, must-stock items and growth categories. It owns some shops in its estate and is able to trial new layouts and ideas in them before offering them to other members.
Trading manager Steve McCann says shops that have reviewed their drinks ranges with the help of head office have tended to boost their takings by around 3%. He is optimistic about the category after it grew 3% in 2010 compared with 2009 and says chilled sales, rosé – which is often under-represented in c-stores – Italian Pinot Grigio, premium and pear ciders, and pre-mixed cans are potential growth areas.
“Tougher trading conditions will greatly impact category sales in 2011. The VAT increase, potential further increases in alcohol duty, reduced consumer disposable income, changing licensing legislation and consumer perceptions of price – ie that convenience store are more expensive than the multiples – will be significant when it comes to retailers maintaining and growing their share of spend across the category,” he says.
“Convenience retailing has an important role to play in alcohol sales. Growing competition and the changing retail landscape, such as the demise of Threshers and more traditional off-licences, has increased opportunities for c-store sales – despite the continual battle against deep-cut discounts offered by the multiples,” McCann adds.
On average, convenience store shoppers visit their local shops three times a week, with 17% using them at least once a day, according to research by food and grocery analysts IGD.
Its Small Store Shopper report also found that 35 to 54-year-olds and those from AB socio-economic groups are more likely to buy ingredients for their evening meals and alcohol from c-stores, while 15 to 24-year-olds and those in CDE socio-economic groups use them for cigarettes and other tobacco products, lunch and snacks.
IGD chief executive Joanne Denney-Finch says: “Convenience stores are clearly popular and this trend is set to continue. We predict the market will be worth £42.6 billion by 2015, up a third from its current value.
“The main consumer trends that will contribute to growth include a growing population, less meal planning, more people missing meals at home and a desire to shop locally. As more people live in urban areas nearer convenience stores, retailers and suppliers need to ensure they are aware of the changing profile of their catchment area. And they will have to adapt their product range and merchandising accordingly.”?Community role?Lowman says change is already happening, with more c-stores offering services such as Post Offices, bill payments and even dry cleaning, as well as more alcohol.
“Stores are fulfilling their role in the community better and in a much more complete way. They are doing better at understanding what people want.
“The change in economic position, with people being more careful, in some ways is a problem for our members because they are fighting against very low price perceptions in superstores – but people in tough times also become a bit more hand-to-mouth in the way they live.
“They want to be very careful about spending lots of money very quickly and prefer to manage cash flow day to day, so they will shop around and maybe visit their local store more to look for deals. We have seen footfall go up in the past couple of years,” he says.
“The challenge is to keep that momentum up. With more single-person households and an ageing population, people are more likely to trade little and often. The overall challenge for our members is to meet those needs in an increasingly competitive market.”