How Convenience Stores will drive Retail - Storewarsstorewars.net/wp-content/uploads/After the...

How Convenience

Stores will drive

RetailI n t e r n a t i o n a l U n i v e r s i t y o f M o n a c o ,

A p r i l 8 t h 2 0 1 4

2

Key drivers of convenience stores and

convenience store models

Key drivers for convenience stores

Saturation

Traditional

vs. Modern

Trade

UrbanisationLegislation

MARKET

Source: Planet Retail

Key drivers for convenience stores:

Ageing

Population

Fast-Paced

Lifestyles

Demand for

Multi-ChannelMiddle Class

SHOPPER


European Model Japanese Model

Sales area Around 200 square metres, often with a storage area.

Up to 120 square metres, often with limited storage area.

Number of items

2,500-3,000 product lines with a focus on fresh product ranges and ready meals.

Around 2,800 items with focus on ready-to-eat and hot meals.

Store expansion

Part of a multi-format strategy usually to regions where the retailer already operates.

Streamlined to one geographical area or city:• Enables efficient logistics and tailored product

ranges to local consumers. • Enables efficient marketing and promotions.

Distribution Distribution from own logistics facilities:• Shelf-ready packaging.• Push to single item delivery.

Temperature-separated and combined distribution through a distributor:• Retailers pushing manufacturers and wholesalers

to combine their delivery to reduce delivery at store level.

• For example: ice cream and ice cubes - 3-7x per day at minus 20 degrees C; Lunch box, rice balls, over-fresh bakery – 3x per day at 20 degrees C.

Product innovation

Limited Very frequent: • 1,000 new products in the drinks category per year.• 500 new products in the noodle category per year.

Supplier collaboration

Limited Co-operation with manufacturers regarding new product development is very common.

Opening hours Limited Mostly 24/7

European vs. Japanese Convenience Store Models

Source: Planet Retail and own

6

Global and regional

channel growth

Convenience & forecourt store channels/kiosks will outpace hypermarkets and supermarkets in terms of the 5-year CAGR.

0

500

1.000

1.500

2.000

2.500

Hypermarkets &Superstores

Supermarkets &Neighbourhood

stores

Discount stores Convenience &Forecourt stores

Cash & Carries &Wholesale clubs

Drugstores,Pharmacies &Perfumeries

Online

Reta

il B

an

ne

r S

ale

s (

US

D b

n)

Global: Channel Sizes by Sales, 2008-2018f (USD bn)

2008

2013

2018f

Note: f - forecast


2,2

5,0

15,0

7,6

3,6

6,1

3,2

4,5

14,2

10,8

5,25,7

3,8

9,6

0,0

14,5

7,7

10,5

4,7

8,8 8,7

12,4

7,4

6,2

1,7

3,2

6,7

10,3

5,4

12,9

0,0

2,0

4,0

6,0

8,0

10,0

12,0

14,0

16,0

Western Europe Central Europe Eastern Europe LATAM North America Asia & Oceania

CA

GR

Reve

nu

e G

row

th (

%)

Global: CAGR Channel Revenue Growth, 2013e-2018f (%)

Hypermarkets Supermarkets & Neighbourhood Stores Discount Stores Convenience & Forecourt Stores CC&WC

The convenience store channel will be one of the fastest growing channels in Western and Central Europe, although in many Central European countries it is a new format.

Note: e – estimate; f – forecast Source: Planet Retail

Convenience store channel in Eastern Europe is underdeveloped, shaped by X5 Retail Group’s Perekrestok Express banner only.

Tesco: Convenience stores to take a bigger share of total revenue.

Tesco is to invest in Tesco Express as it is one of the retailer’s most profitable banners.

Future growth prospects are promising in Asia (Thailand & Korea) alongside the UK.

The assortment is no longer based on size alone - Tesco Express stores are tailored to location and shoppers.

82%76%

70%

9%

9%8%

5%10%

14%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2008e 2013e 2018f

Tota

l Sal

es

(%)

Tesco: Sales by Channel, 2008e-2018f (%)

Convenience &forecourt

Supermarket &neighbourhood

Hypermarket &superstore

Note: e – estimate; f – forecast.Source: Planet Retail

Seven & I: Aggressive investment into convenience stores.

7-Eleven convenience stores account for 75% of retailer’s group operating profit, while it holds a 38% share of the group net sales.

A record 2,500+ new store openings in FY 13 with an investment of USD2 billion.

Seven & I’s philosophy: The manufacturer should be responsible for development of the product even though it is a private label product.

20%16% 13%

18%

15%12%

62%70%

76%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2008e 2013e 2018f

Tota

l Sal

es

(%)

Seven & I: Sales by Channel, 2008e-2018f (%)

Convenience Stores

Department &Variety stores

Hypermarkets &Superstores

Note: e – estimate; f – forecast.Source: Planet Retail

11

Trends

Discounters like Lidl, Aldi, Netto, Rema1000 are adapting their concepts to the convenience trend.

Lidl, Netto has been introducing instore bakeries across its European operations.

Aldi, Rema1000 offers chilled snacks and beverages, as well as impulse products and newspapers near the tills, while non-food ranges have been significantly reduced and opening hours extended.

Trend 1: Discount channel blurring with convenience.

This Aldi store in London covers just 650 square metres

(7,000 square feet) and features quick checkouts with

single queuing.

Producers of fresh food may gain space on discounter shelves. However, considering discounters’ low cost logistics, suppliers will have to deliver products directly into stores avoiding distribution centres. Opportunity arises rather for local producers.


Trend 2: The convenience store channel and fast food retail sector is becoming blurred, especially in Asia.

There is significant opportunity for manufacturers of local food to grow with convenience store operators, while Seven & I’s and LAWSON’s store expansion will be a threat for fast food chains.

Finding a strong commercial opportunity in providing hot lunches for

consumers, LAWSON in China installed simple kitchens in selected stores to

cook for customers, attracting huge footfall and considerable accompanying

side purchases as well.

X5 Retail Group testing a Perekrestok Express convenience store with a large

assortment of hot meals and an eating area in a office area in Moscow.


Carrefour Express in Belgium offers a click & collect service via its mobile app. It has a localisation feature that shows the way to the store.

Refurbishment of Tesco Express stores in the UK includes the introduction of click & collect services in selected stores.

However, same-day collection is possible only for grocery orders.

Seven & I in Japan plans to roll out multi-channel services using its 7-Eleven network as collection points for orders from its department stores and supermarkets as well as online retailers.

Trend 3: E-commerce going hand-in-hand with convenience stores.

Collection of non-food online orders at convenience stores will require flexible logistics which allow order fulfilment within 24 hours.

© C

arr

efo

ur


Casino in France won a bid with the SNCF (French National Railway Company) to have a presence in its railway hubs.

Casino’s Dailymonop’ stores supply IDTGV high speed trains in France, while British Waitrose supplies Eurostar trains.

Tesco opened its first Tesco Express at an airport in 2013 (Gatwick).

Waitrose, 7-Eleven as well as M&S Food are expanding at motorway service stations.

Trend 4: Convenience stores are increasingly entering travel hubs.

Casino’s dailymonop’ store in the Paris-Orly airport, spread

over 180 square metres with a special focus on fresh produce

and snacks.

Manufacturers will have to change their products to a smaller size and add travel-friendly packaging.

Supply chain management into these locations may be extremely challenging. Suppliers in Europe may learn from the Japanese model which will require combined distribution.


More frequent delivery and limited storage area will call for investment in supply chain management and logistics.

100% software controlled picking and packing can support sequencing goods on transport units to store layout.

Delivery to stores located in city centres will require smaller trucks, different size of transport units and reusable plastic boxes.

Limited storage areas will require optimised shelf replenishment.

Trend 5: Investment in “City logistics concept”.

A picker in Witron’s Ergonomic Tray

Picking (ETP). A laser shows the picker

where to put the case on top of the other

cases.

The challenge will be to manage the various size and shapes of stores with space management software that is linked to the packing tool and facilitates sequencing according to a store’s layout.

The future of supply chains in many Asian countries will be in the bundling of delivery of various suppliers into one, while in Europe it will be 100% supply chain through a distribution centre.

© W

itro

n


Carrefour Express in Belgium is targeting its consumers via Facebook and mobile apps with special offers.

Trend 6: Mobile apps as a marketing tool.

As promotion in stores will become rare due to limited supply chain capabilities, social media and technology like apps and QR codes could help retailers get the attention of shoppers.

Carrefour Express suggests wines

suited for lunch on its Facebook

profile.

Carrefour’s virtual loyalty card

named Carte Bonus is being trialled

as an app.


In the USA, convenience store operators are moving away from “roller grills” to fresh bakery, pre-packaged fruit, smoothies and sushi.

Tesco is expanding its premium (Tesco Finest) private label products in Tesco Express stores, while Tesco Everyday Value is more visible in stores located in less affluent areas.

Understanding the needs of local shoppers will become essential for a convenience store. Knowledge of a franchisee or shopper data from a loyalty programme will help differentiate from competitors.

Trend 7: Tailored product ranges and offers.

Seven & I tailored its store in lower

Manhattan, New York, to the local affluent

shopper segment.

Retailers will push their premium priced private label products into the convenience store channel. Brand manufacturers, likely to be pushed out, must come up with offers to connect their product to retailers’ private label products e.g. lunch deals.


High store density in mega cities will lead to strong competition. Retailers will have to differentiate themselves from competitors through product offers and innovation.

Seven & I’s 7-Eleven is the master in collaboration with manufacturers on the development of its private label products and exclusive ranges.

Trend 8: Collaboration between retailers and manufactures.

Seven & I will replicate its philosophy when expanding in the USA, Canada, South-East Asia and China. Market consolidation and high competiveness especially in Asia will push retailers and manufacturers to adopt this strategy (partly already happening in China).

Exclusive product ranges, private labels and product innovation will boost the revenues in the convenience store sector in the future.

7-Eleven in Japan is promoting its beer

private label product under

manufacturer’s (Suntory) brand THE

BREW.

Chill activated can from Coca-

Cola offered exclusive at 7-

Eleven stores.

An exclusive wine range

introduced in USA (2009) and

China (2010).


UK retailers like Tesco are capturing

on number of closed down pubs in

the UK.

A move into high street retailing can sound risky, but margins coming from tailored product ranges to affluent shoppers could offset high rental cost.

Retailers will become much more flexible in terms of their requirements for leased properties.

Tesco Express, as well as Sainsbury’s Local, has seen its average sales areas in the UK declining.

Strong grocery brands like Tesco, Rewe, Carrefour will have a competitive advantage over a local brand when negotiating with developers and so it will secure optimal locations in new build residential areas.

Trend 9: Flexibility in store location and size.


Tesco Express store in London with

an aisle leading to the self checkout

zone.

Self-checkout technology moves alcohol into shelves which can be seen as a positive move as it helps shoppers to overcome physical and psychological barriers when buying these products.

However, producers of impulse product categories may suffer. They should collaborate with retailers on a change in the store navigation. Development of convenience stores will speed up introduction of NRF payment methods in grocery retail market.

Waitrose and Tesco are increasingly introducing self-checkout zones in their convenience stores in the UK. Sainsbury’s will follow suit.

Tesco opened its first self-checkout-only supermarket in Poland in 2012.

Trend 10: Accelerating the introduction of self-checkout zones and contactless payment


The struggling independent sector is seeking help by forming buying alliances and looking to become franchisors.

Tesco is looking to grow its One Stop convenience chain in the UK via franchising.

Costcutter acquired UK buying group Palmer & Harvey in 2013.

Carrefour is expanding in Central & Eastern Europe through franchising.

Trend 11: Franchising is boosting convenience store growth.

Not only convenience store operators, but also wholesalers and cash & carry operators aim to expand through franchising. Gaining franchisee’s loyalty will be a massive challenge.

Brand manufacturers will be losing their margins in the diminishing traditional retail sector.

160 Carrefour Express stores opened in Poland (above) in

2013, while it closed several deals with franchisees in

Romania.


23

Conclusions and implications

Be carefull with definitions, slide from discount to neighbourhood and conveniencestore.

Tesco in Europe and Seven & I in Asia will be the key convenience store players in the future. Each of which operates a different model – European and Japanese model of convenience stores. However, keep an eye on Casino which is investing in its convenience store concepts in France and may expand them in foreign markets in the future.

Massive opportunities for convenience stores lie not only in aging urbanised populations in developed markets, but also in Asia where the urbanisation process is creating great foundations for the format.

In emerging markets, especially Asia, brand manufacturers need to start looking towards modern retail as the convenience store channel will be fast-growing at the expense of the traditional retail sector.

Due to the “clustering” expansion strategy, competition in the convenience store sector will grow faster than in other channels.

The convenience store channel


Manufacturers will have to start to co-operate closely with retailers on product development, product innovation and joint supply chain management (partly adopting the Japanese model).

With limited space in stores, retailers must use new technology such as apps, social media and QR codes in their marketing strategies in order to attract shoppers into their stores.

The option of seemless direct delivery to convenience stores can be a major parameter in the competition between different manufacturers, making it possible for smaller, more flexible manufacturers to succeed.

While convenience stores with hot meals areas will be a threat for fast food chains, discounters such as Aldi, Lidl, Netto, Rema1000, which are including convenience store features into their concept, could take a share of the convenience store operators like Tesco.

Retailers’ increasing flexibility of store locations and store sizes, as well as blurring of e-commerce with convenience stores, means that they have to invest into fully-centralised delivery and process automation in distribution centres.

Relevant to manufacturers and retailers


Would you like to know more?

Managing Partner Karsten Bobek

[email protected]

Mobile +45 3139 5080

Skype karsten.bobek

Milestone Competences offers a training service that gives your

employees a better understanding of the company and the dynamics that

influence it. Built around the interplay between analytical tools and

business simulations, our courses let you play your way to insights. We

facilitate the learning experience and make sure the lessons are anchored

in daily work practices and add value for your company. Play your way to

Insight. Visit www.milestonecompetences.com

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How Convenience

Stores will drive

RetailI n t e r n a t i o n a l U n i v e r s i t y o f M o n a c o ,

A p r i l 8 t h 2 0 1 4

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