Convenience Metamorphosis

Published in CSP Daily News

Shoppers rewarding channel with above-average growth due to on-the-go model, better stores: IRI

CHICAGO -- The convenience store channel has long been a destination for immediate consumption purchases; however, the channel--while still facing challenges--is undergoing a positive metamorphosis, according to Information Resources Inc.'s (IRI) latest Times & Trends report, "Convenience Stores: Keep the Core; Appeal to More."

While c-stores of the past had a rather homogeneous look and feel, today's stores are much more varied. And many c-store owners are replacing long aisles with kiosks, experimenting with larger footprints and adding "good-for-you" products.

Shoppers have rewarded c-store management for these innovations. When compared to the grocery and drug store channels, the c-store channel was the only channel that enjoyed both dollar and unit sales growth in 2012.

Competition is still heating up, however, as c-stores are pitted against other channels, particularly dollar and drug channels, for share of spending. Also, two major sources of revenue and trip behavior for c-stores, gasoline and cigarettes, are facing their own challenges with high prices, increased taxes and, for cigarettes, changes in consumers' lifestyles.

Cigarette sales generated more than $52 billion in sales with the c-store channel in 2012. Cigarettes are, by far, the largest category within the channel. They are also a key driver of trip missions, with 150 store trips per day driven by cigarette purchases in 2012. While this is a huge number and cigarette dollar sales have climbed during the last several years, volume sales are down sharply.

The U.S. smoking rate has declined by 50% since 1965, according to the Centers for Disease Control & Prevention (CDC), the culmination of several factors--increasing taxes, health concerns and the innovation of new smoking alternatives. Smokeless tobacco has experienced strong growth across consumer packaged goods (CPG) channels in recent years. In 2012, smokeless tobacco unit sales climbed 2.7% across IRI's multi-outlet plus convenience geography. Electronic cigarettes also are demonstrating strong momentum.

According to AAA's Fuel Gauge Report, the average national gasoline price for the first three months of 2013 was $3.64, an increase of nearly 9% versus 2011, and is on par with 2012. This increase is having a negative impact on consumers' wallets, with 44% of Americans feeling additional budgetary strain due to gasoline prices. And, among some segments, such as the millennial population, even more consumers (56%) are feeling the pinch.

In contrast, the proximity of c-stores is a benefit in times of high gasoline prices, said IRI. For instance, 10% of consumers state that they shop c-stores more frequently in the presence of high gasoline prices due to their convenient locations. Among millennial shoppers, 24% have stepped up convenience channel shopping frequency to save money on gasoline.

Performance across the top 10 largest c-store categories was a mixed bag in 2012, with four of these categories outperforming industry average unit sales growth rates. The strongest performers were tobacco and beverage categories. By far, the strongest growth came from energy drinks, with double-digit growth in both unit and dollar sales in 2012 at 56.4% for each, respectively.

The sharpest decline among the top 10 c-store categories was in the bottled water category. This category has struggled during the past several years in the face of consumer efforts to rein in spending. From 2008-2012, bottled water unit sales slipped 3.1% despite beefed-up promotional efforts and associated price deflation.

The convenience channel's focus on quick and easy, often immediate consumption and indulgent, products is clearly illustrated in the channel's 10 top-selling categories, many of which are beverages. For example, weight control/nutrition liquids/powders is a category that has experienced excellent growth in recent years. The c-store channel is capitalizing on opportunities in this area by broadening the availability of these products. In fact, total points of distribution in this category within the channel increased by nearly 78% since 2008.

Of course, there are declines in some categories as well. Overall, unit sales declined in 22% of the top 50 c-store categories between 2008 and 2012. This includes three of the channel's top-selling products: cigarettes, carbonated beverages and bottled water. Nearly all of the sliding categories experienced average price per volume increases during the same time period.

Despite the challenges of the convenience channel, IRI has uncovered the following growth opportunities:

  • Electronic Cigarettes: This product has enjoyed explosive growth since bursting on the scene in 2009, and the convenience channel accounted for two-thirds of the category's sales in 2012. Channel growth of electronic cigarettes escalated in 2013, bolstered by deflationary pricing trends. The continuation of favorable pricing-related trends is key to retailers that seek to ride the wave of growth in this up-and-coming category. 
  • Health and Wellness: With two-thirds of consumers indicting that they are trying to eat healthier, c-store marketers have a great opportunity to help consumers strike a balance between wellness and indulgence in their lives. Even in traditionally indulgent categories, such as salty snacks and cookie and bakery snacks, healthier options are available and are being well received. C-store store marketers must develop consumer-centric, 360-degree health and wellness programs.
  • Foodservice: Although many consumers are already buyers of convenience channel foodservice offerings, the desire for better quality offerings is high. This may include customizable and freshly made options, or selections provided by local or well-known restaurants.
  • Outdoor Advertising: Since many consumers pay at the pump at c-stores, outdoor advertising is key to luring shoppers inside the stores. In fact, product growth rate is twice as high with outdoor causal advertising compared to doing no advertising.

IRI is offering a free webinar, "Convenience Stores: Keep the Core; Appeal to More," on June 18. The findings of this report were compiled based on information from IRI AllScan Convenience Service, IRI Sales Advantage, IRI Market Advantage and IRI ShopperSights. Click here to download the free report with registration.

IRI, Chicago, delivers market and shopper information and predictive analysis for the CPG, retail and over-the-counter healthcare industries.

For more details and an interview with Susan Viamari, editor of IRI's Times & Trends, watch for an upcoming issue of the Convenience Store Products e-newsletter.